The Importance of Business Interruption Insurance
When Mother Nature intervenes, small and large businesses alike need to address their insurance coverage and ensure they have taken the necessary steps to keep their business running as usual. Karen Stern, Partner in Charge of the Brown Smith Wallace Entrepreneurial Services Group, addresses these business interruption insurance issues in this month’s “Financial Fitness,” as featured in Small Business Monthly.
Small and large businesses have a lot in common when it comes to Business Interruption Insurance (BII), especially when it comes to understanding what is and is not covered.
Insuring your buildings or equipment is fairly easy to understand – you determine the values for your property and report them to the insurance company. The policy will cover loss that occurs based on the “perils” that are specifically insured.
Here are some of the BII issues that small businesses specifically should pay attention to:
- Did you include BII in your policy? It is a separate section that needs to be added to the policy – it is not automatically included.
- Valuing loss. BII insures your “loss of profits” – how do you value the loss in a growing or shrinking business?
- Will you have to pay your employees while your building is being rebuilt? You could lose valuable employees if you do not continue their income – this is called “ordinary payroll” and needs to be specifically included in your policy.
- What “perils” are covered? Your BII only covers perils that are on your property policy – what about Earthquake and Flood losses? If you have a loss because “access to your property is denied” are you covered? (Access can be denied for snow storms, tornadoes, civil authority, etc.)
- How do you prove your loss? What “profits” would you have lost during the period that you were out of business? Should you agree with the insurance company before a loss happens?
- Loss of market share. What about “loss of market share” that you may never be able to recover? How is that insured?
- Business interruption. What if one of your major “customers” or “suppliers” has a loss at their business which causes you to lose profits? This is an area that you need to specifically address.
- Covering extra expenses. You may want to include coverage for “extra expense” that you may incur to keep you in business, like the rent on a temporary replacement building to keep your business operating.
These are just a few areas that a small business should address. Each organization has different needs for BII and you should make sure you have an advisor to help you think through your particular coverage needs.