The business world can be unpredictable, and even minor events can disrupt daily operations and affect your profits. That’s why having Business Interruption Insurance is critical to a solid risk management strategy. But what is Business Interruption Insurance, and how can you ensure you have the appropriate coverage for your business’s needs?
- What is Business Interruption Insurance?
- Examples of Benefits and Coverage
- Common Mistakes and How to Avoid Them
- Seek Advice from a Professional
What is Business Interruption Insurance?
Business Interruption Insurance covers lost business income or profits and operating expenses when the business cannot operate as usual. Incidents may include natural disasters and when a facility or equipment sustains damage. However, Business Interruption Insurance works differently from Property and Equipment Insurance. Rather than providing cover for property repair or replacement costs, business interruption aims to cover the loss of income to the business due to the damage sustained or equipment breakdown.
Examples of Benefits and Coverage
Various benefits and specialised coverage areas are needed to maintain financial stability and reduce the damage caused by disruption to business operations. Here are some common examples of the benefits and what the insurance typically covers:
- Income loss (calculated based on previous financial statements)
- Operating expenses (utility bills, property rent, other fixed costs)
- Employee wages (may include benefits and training costs)
- Tax and loan payments
- Additional expenses (relocation, equipment repair or rental)
Specific exclusions and constraints can be added to the insurance policies that you must watch out for. It’s ideal to routinely review coverage details to avoid surprises when an incident occurs. You also need to check for other coverage that may be required depending on the nature of your business and service. Contact East West Insurance Brokers to explore your options and find the insurance that suits your business.
Common Mistakes and How to Avoid Them
Underestimating coverage needs and costs
A common oversight many business owners make is underestimating the full impact of operational interruptions and focusing solely on lost revenue. When evaluating Business Interruption Insurance, consider the entire spectrum of operational costs, from daily expenses, employee wages and benefits to supply-related expenditures.
Where your business is located and what type of industry you’re in plays a vital role in determining the necessary coverage and premium costs. Those operating in high-risk areas and industries require even more comprehensive coverage. Properly assessing these elements when selecting your policy helps ensure your business remains resilient despite unexpected challenges.
Failing to review and update insurance policy terms and conditions
Business Interruption Insurance policies vary regarding coverage, limits, and exclusions. Before signing the dotted line, it’s essential to review the insurance policy terms and conditions to ensure it meets your business’s specific needs. Pay close attention to factors such as the waiting period before coverage kicks in, the length of coverage, benefit period, and any limitations on coverage for specific events.
Remember to review current insurance coverage regularly after signing, too. Always take a proactive approach and stay informed about your policy details. It can help you identify any necessary updates or adjustments as your business grows and evolves.
Not considering additional or specialised coverage
Each business is unique, with specific challenges and requirements shaped by its industry, location, and operational scope. Part of a good risk management strategy should be evaluating the additional or specialised coverage and integrating custom insurance solutions. So, consider the following:
Prevention of Access (PA)
Many unforeseen events can disrupt business operations, from natural disasters to other dangerous situations. These may prevent you from operating your business and even restrict access to your premises by a legal authority ordering the evacuation of the public. This is where Prevention of Access comes in. It’s a specialised type of coverage under Business Interruption Insurance that protects against loss resulting from interruption of, or interference with, your business as a result of damage or threat of damage to property in the vicinity of the premises covered by the policy.
Suppliers and/or Customers Premises (SCP)
SCP is a specialised type of coverage that aims to protect businesses from financial losses resulting from property damage or loss at specified suppliers’ or customers’ premises. Suppose a manufacturing company faces significant delays and income loss due to a key supplier’s failure to deliver the necessary components in production following an insured event at their location, SCP can help mitigate the loss. On the other end of the supply chain, if your business relies on revenue from major customers who cannot complete their purchases due to property damage at their own premises, you can file a claim to minimise your losses.
Public Utilities Extension (PUE)
While SCP protects against issues with third-party businesses in the supply chain, PUE is related to utility providers. It mitigates financial instability when utility services fail and disrupt normal operations as a consequence of damage to any land-based property anywhere in Australia or New Zealand. This includes incidents involving any utility company producing, transmitting, supplying or delivering electricity, gas, water, sewerage or communication products or services used by the business. Companies in manufacturing, hospitality, and IT can significantly benefit from PUE.
Inaccurate or improper documentation
If you’re filing an insurance claim for loss of revenue, proper documentation is critical to ensuring that you receive the full benefits of your Business Interruption Insurance policy. Keeping detailed records of your finances and any communication with your insurance provider also reduces the likelihood of being denied.
Seek advice from a professional
Avoid making these common mistakes. Discover how to calculate your Business Interruption Insurance and get a reliable estimate. Seek advice from a professional insurance broker to ensure your business is covered as effectively as possible.
East West Insurance Brokers can assist you in evaluating your business’s requirements and comparing coverage options from multiple providers. Our team of experienced Insurance Advisors will provide valuable insight as you navigate different policies’ various terms and conditions. Get in touch with us today and get insured.
