Business Insurance Lessons Learned from Big Storms

October 16, 2013      

The difficulty many businesses had reopening after Superstorm Sandy is a reminder of the importance of having a disaster recovery plan and the right type and amount of insurance.

An estimated 25% of businesses never reopen at all following a major disaster.

“Business owners are busy building their businesses, but they need to invest the time and money to develop a disaster recovery and contingency plan,” said Loretta Worters, vice president with the I.I.I.

Having the proper business insurance to help keep their business going when disaster strikes is also crucial. Every day a business is not up and running it is losing revenue.

Review the Insurance.

There are several forms of business insurance coverage to consider and discuss with the company’s insurance professional:

• Building Coverage provides coverage up to the insured value of the building if it is destroyed or damaged by a covered cause of loss, such as a hurricane.

• Business Personal Property provides coverage for contents such as furniture, fixtures, equipment and machinery, computers, printers, inventory and supplies. It also includes coverage for personal property that is kept at the business site.

• Business Interruption coverage typically comes into play if there is physical damage to the structure as the result of a risk or peril specified by the policy language. Most commercial property policies exclude flood coverage.

There are four types of coverage that are typically associated with business interruption coverage. Determine which coverage is right for the business:

1. Business Income provides coverage for lost revenue and normal operating expenses if the place of business becomes uninhabitable after a loss during the time repairs are being made. The amount of business income payment is determined by the company’s net profit or loss before taxes and continuing normal operating expenses, including payroll. Make sure the policy limits are sufficient to cover the company for more than a few days.

After a major disaster it can take more time than anticipated to get a business back on track. And be aware that there is generally a 24- to 48-hour waiting period before business income coverage kicks in.

2. Extra Expense insurance provides coverage for the extra costs incurred above and beyond the normal monthly expenses—such as temporary relocation or leasing of business equipment—while repairs are being completed at the place of business. Extra Expense insurance can be combined with business income as part of the policy.

3. Contingent Business Interruption/Supply Chain Coverage compensates the company for any income the company loses due to property loss or damage at a supplier’s or customer’s location. The cause of the interruption must be from a covered peril and must result in physical damage that inhibits the third party from being able to supply or receive the insured’s goods.

Supply chain insurance also offers business owners protection against both physical and non-physical interruptions to their business, such as strikes, riots, ingress/egress, pandemics and more. Any peril that interrupts a company’s supply chain can be underwritten into the policy. It is important to make sure the company’s records and books are up-to-date and accurate in order to be able demonstrate how a key component, product, supplier or re-seller contributes to company earnings.

4. Civil authority coverage pays for loss of income or extra expenses as a result of a government denying the company access to its business due to a covered loss at a location owned by someone else.

Most standard business policies do not include flood insurance. Flood insurance is available from the National Flood Insurance Program and some private insurers. There is a 30-day waiting period before the coverage goes into effect.

Commercial excess flood insurance is also available to business owners. This coverage is over and above the standard flood insurance policy. If the company bought separate policies for flood or windstorm coverage, ask the company should ask its insurance professional if those policies include business interruption coverage.

It is important to reduce risks as much as possible with the right type of insurance coverage. For more information, contact TriState Business Insurance.

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