Recent Hurricane a Grim Reminder to Check Your Business Interruption Insurance Policy

Property & Casualty Team

Business Interruption Insurance Policy Vulnerabilities | Regina Burns-Stover | Corporate Synergies
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Hurricane Matthew, which wreaked havoc in Florida, Georgia, and South Carolina and flooded large portions of North Carolina in the Fall of 2016, is a grim lesson on why companies need business interruption insurance. The hurricane damaged or destroyed more than one million structures and is predicted to cost $10 billion in damage.1 Although the theme parks in Central Florida shut down for only a few days, businesses in flood-ravaged North Carolina were much slower to reopen.

By the time meteorologists identify a hurricane nearing the country and give it a name, it’s too late. Insurance coverages are already set, and you’re forced to wait out the storm to see what damage it does.

Hurricanes, floods and earthquakes are reminders to review your business interruption insurance policies to make sure that if your business is affected by a natural disaster, you’re covered. Here are four things to consider:

Don’t underestimate how long business will be interrupted

When you’re reviewing business interruption insurance options, it can be tempting to save some money and choose less coverage if you haven’t lived through a hurricane, earthquake or flood. It’s easy to underestimate how much damage can be caused and how long your business will actually be interrupted. Almost 40% of small businesses don’t reopen after a disaster because they’re not properly covered.2 And in some cases, your business may reopen just a few days later, but you could feel the effects of the event long after you’re back up and running.3 Review your policy limits now to make sure they’re adequate. Make sure your coverage includes extra expense as well. It’s best to be as prepared as possible.

Make sure your suppliers are covered

You might not be directly affected by a hurricane or earthquake, but your suppliers might be. If you can’t get raw materials to make your products, or if you can’t deliver them, you might need contingent business interruption insurance (CBI) to cover your suppliers. Contingent business interruption insurance will reimburse your lost profits as a result of a disruption in your supply chain. Review your policy now to assess what weather events trigger all of your business interruption coverages and the limits provided.

When reviewing business interruption insurance options, it’s tempting to save money by choosing less coverage, but…

Review payroll coverage

If your business has been impacted by a storm, your operations might be stalled for several weeks or months. If you employ skilled professionals, you likely want to ensure that they can continue working for you when your business is back up and running. Of course, if much of your business is done online, you may be able to work remotely in the near-term. However, if your business requires people to work in a specific location or with specific tools, you want to ensure your talent is paid while your business is being rebuilt.

It’s important for a business to determine which classes of employees should be covered during a period of restoration and any exceptions to employees are addressed and defined appropriately covered as “ordinary payroll” under your business interruption insurance coverage as well.

Create a disaster recovery and communications plan

In addition to making sure that you’ve got adequate business interruption insurance to cover necessary repairs and rebuilding following a weather event, it’s vital to have a disaster plan that covers technical aspects of what’s needed to get your business up and running again. Similarly, you need a communication plan that outlines how you’ll alert employees about the status of the business.

Often, your business’ insurance policies are not top of mind until an actual loss occurs. However, it’s important to review policies and plans regularly to make sure they align with your current business. For example, if you’re going through major growth, you may want to ensure your business interruption insurance policy adequately covers the loss of expected revenue.

And if you make organizational changes, you may want to revisit who is and is not covered under payroll insurance. Putting these policies into place now, and learning from the mistakes of others, can help you deal with a disaster if—and when—it strikes.


1 Yahoo News, “Hurricane Matthew Damage in US $10 billion

2 Ready.gov, “Protecting Your Businesses

3 Inc., “Where They Are Now: 5 Businesses Hit by Hurricane Sandy

 


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