Most business owners think Business Interruption insurance only covers damage to their own premises.
But when we review a client’s cover, we look at more than their own business.
We also consider the businesses they rely on, such as suppliers, customers and storage providers.
If one of these businesses is affected, it could also disrupt your business and reduce your income.
This is where Contingent Business Interruption cover can help.
How Can Contingent Business Interruption Cover Help?
Your business does not need to be directly damaged to suffer a loss.
If a business you rely on is affected, it could cause delays, lower sales or lost income.
When we review Business Interruption cover with our clients, these are some of the key areas we encourage them to think about.
1. Your Suppliers or Manufacturers
Many businesses rely on suppliers for products, materials or equipment.
But what would happen if one of your key suppliers could no longer deliver?
If their premises are damaged, it could delay your business and affect your income.
For example:
- A dressmaker cannot source fabric after a supplier’s warehouse is damaged by fire.
- A café cannot receive deliveries after a bakery supplier is damaged by a storm.
- A construction company faces delays after a supplier’s factory is damaged by fire.
Depending on your policy, Contingent Business Interruption insurance may help cover the financial impact.
This is something we recommend considering if your business relies heavily on a small number of suppliers.
2. Your Customers
Sometimes, the disruption can come from the other side of your business; your customers.
If a major customer is affected by an insured event, they may not be able to operate as normal. They may reduce or stop buying your products or services.
For example, imagine you supply products to a restaurant that is damaged by a storm and needs to close for repairs.
While the restaurant is closed, they may not be able to purchase from you. If they are a major customer, this could have a real impact on your income.
If your business relies on a small number of key customers, Contingent Business Interruption cover may help protect your income.
3. Third-Party Storage Facilities
We also see businesses storing stock at warehouses or storage facilities they do not own.
If that location is damaged, it could delay orders and affect your ability to trade.
Your policy may provide protection if the storage facility belongs to another business.
However, we also recommend checking that any stock stored at third-party locations is properly insured.
Two Important Things to Know
Contingent Business Interruption cover can provide valuable protection, but there are some important limits to understand.
1. The Damage Must Be Covered
For your claim to be covered, the damage will usually need to be something your Property Damage insurance would cover.
For example, your supplier’s warehouse is damaged by flood, but your Property Damage policy does not include flood cover.
In this situation, your Business Interruption claim may not be covered.
This is why we always encourage our clients to look at their Property Damage and Business Interruption insurance together. The two covers can work closely together when a claim occurs.
2. Your Claim May Be Limited to 20%
Many insurers place limits on claims involving suppliers, customers or storage facilities that are not specifically listed on your policy.
A common limit is 20% of your Business Interruption Sum Insured, although this can vary between insurers and policies.
For example, if your Business Interruption Sum Insured is $500,000, your claim for an unnamed supplier, customer or storage facility may be limited to $100,000.
For a business that relies heavily on one key supplier or customer, that limit may not be enough.
When we review your policy, we can help you understand these limits and whether they provide enough protection for your business.
Is Your Insurance Keeping Up With Your Business?
Your business does not stay the same forever.
You may work with new suppliers, gain bigger customers, hold more stock or change the way you operate.
That is why we recommend reviewing your insurance regularly.
We encourage you to ask yourself:
- What would happen if my main supplier stopped operating?
- What if my biggest customer could no longer trade?
- Could my business continue if my stock was damaged at another location?
- How long could I continue operating if a key business partner was affected?
If the answers raise some concerns, it may be time to review your cover.
As your broker, we can help you understand your policy, explain any limits and look at whether your current cover still meets your needs.
A quick conversation with us today could help you identify a gap before you need to make a claim.