As a business owner, mitigating risk and ensuring the continuity of the running of a business will be a big priority. Of course, one of the ways you can achieve this is by having insurance in place to protect you, your employees and your business if the worst should happen.
Whilst business owners may think to protect their physical assets some overlook what they would do if they were unable to trade following the effects of a disaster. Maintaining your business operations, having the right level of cash flow for remedial works and coping with a loss of income or revenue following a major incident are all areas that may not be covered by covers such as a building or a contents insurance policy. This is where business interruption insurance comes into play as it is designed to provide cover for lost revenue and income if your business is unable to trade following an insured event.
How do you know if you have the right level of business interruption insurance in place?
Calculating the level of buildings and contents insurance or the level of liability insurance can be a much easier task than calculating how much business interruption cover you may need. Given the complexities surrounding operational factors and business accounting as well as unknowns around the type of events which may cause disruption to the normal running of your business getting the right level of interruption cover can be difficult.
Figures suggest that of those businesses with business interruption insurance as many as 40% are in a position that would leave them underinsured if they did need to make a claim. Underinsurance occurs when a business fails to correctly estimate the level of cover required protect their assets and costs of getting back up and running.
Areas you must consider include:
• The level of revenue you would lose if you were unable to trade
• How long it would take you to get back up and running to pre loss levels
• Costs of replacing machinery in real terms (not just how much they cost when you purchased them) and lead order times
• How you would cope if there was a shortage of labour
How to prevent underinsurance in your supply chain
You may have calculated that you have sufficient insurance in place to protect your business but what would happen if one of your key suppliers suffered a major incident, making them unable to trade?
If the supplier of an element involved in the production of your product suffers a fire at their premises meaning they are unable to manufacture the parts you require, how would your business be affected? Would your own production have to stop until the supplier was back up and running?
If one of your suppliers goes into administration and it takes you time to find a replacement, coupled with issues around credit you could find yourself in a difficult position
Or if one of your suppliers loses some of your goods in transit causing disruption to your manufacturing process.
These are all issues you need to consider when it comes to insurance and how issues in your supply chain could cause interruption to the running of your business and in particular how much business is at risk if you do suffer a supply chain issue.
How can business interruption insurance cover your supply chain?
It is possible through extensions of your business interruption insurance to cover your suppliers or equally your customers who you may supply goods to. This is particularly important if you are dependent on a key partner to ensure the continuity of your business operations. You need to ensure that not only do you have the right insurance in place but that you have an adequate level of insurance in place to cover the full spectrum of risk that exists across your supply chain.
It’s important to have a full understanding of your suppliers and supply chain – this can range from knowing exactly who your suppliers are to what the contracts that you have in place state when it comes to liability. Understanding such an important element of your business then allows you to really understand the level of risk that is being presented
Anthony Jones Director, Steve Green adds ‘I always advise customers to avoid the dangers of falling into the ‘just’ trap. Using the word ‘just’ implies a level of simplicity to overcoming potential issues and that you will have the answers to any issues that do present themselves. Having a thorough business continuity plan and planning for disaster recovery are essential in avoiding the pitfalls of uttering the phrase ” well we would just…”
At Anthony Jones we work closely with Zurich to help our customers arrange business interruption insurance. Together we can provide you with a business interruption cover calculation which will give you a good guide to the level of insurance your business may need to avoid underinsurance. If you want to discuss your needs with us, give us a call on 020 290 9080 or email us at bi@anthonyjones.com.
