During the winter months, as the weather turns more unpredictable and we see more frequent extreme weather events, family business owners are more likely to experience disruption to their operations, whether that be through a flood or as seen last November, the effects of Storm Arwen which cut off power supplies for days in parts of Northern England and Scotland.
In a recent blog, our Network partner, commercial insurance risk advisory and broking business Marsh Commercial, explore the benefits of business interruption insurance, look at what is commonly covered and how to decide if it may be worthwhile for your family business.
– – – – – – – – – – – – – – – – – –
Business owners may assume most business losses will be adequately covered by buildings and contents insurance. But that’s not always the case. These policies can cover damage – costs for repairs and replacements caused by serious incidents, but they don’t protect the income lost while getting back to business. This is where business interruption insurance (BI cover) comes in.
BI cover is one of the most misunderstood when it comes to business insurance.1 Given the recent controversy around BI and COVID-19-related claims, some businesses may question whether this cover is worth the premium.2
The need for BI will depend on the nature of the business. But before taking out business interruption cover, it’s important to understand what BI is and the risks it can cover.
What does business interruption insurance cover?
Business interruption insurance will protect your business and financial loss if a serious incident – for example, a flood or fire at your business premises – interrupts the ability to trade.3 Think of it as financial cover while you’re getting back to business as usual.
Usually bought alongside insurance such as business premises cover, BI will replace lost income until the business is trading as normal,2 while property insurance helps with the cost of restoring premises and replacing other assets following an insured.
You can also read about BI insurance here.
Business interruption insurance and Brexit
The Marsh Commercial recent UK SME Risk Report shows that most (56%) of the nearly 1,300 UK SMEs surveyed were concerned about Brexit-related risks. That’s to be expected, given the adverse impact it’s had on staffing, supply chains4 and costs5 – particularly in light of the intensifying effect of the COVID-19 pandemic. The report also found 90% of SMEs had felt the impact of Brexit – around a third (31%) stating supply chain disruption, 22% experiencing reduced trade, and a further 19% dealing with reduced cash flow.
While the uncertainty around Brexit continues for SMEs, when it comes to managing and mitigating risks, many are relying on their insurance packages – 25% plan to adjust their insurance arrangements in response, with 24% turning to BI to protect against the impact of Brexit.
However, that may be a misguided approach. Most BI policies will not cover Brexit risks. SMEs may assume they can claim Brexit-related revenue loss under their business interruption cover, but that is often not the case. For example, if the loss results from an issue affecting a supplier, the successful claim would depend on the supplier having suffered property damage – not something that Brexit would cause.
Business interruption insurance may cover businesses in some instances, but not without the addition of specific extensions covering issues such as trade disruption and the loss of key suppliers.
However, although BI cover is not necessarily the right one for Brexit risks, businesses should explore a wider range of issues when deciding whether to take out insurance cover. BI could still play a significant role in the company’s survival after a serious insured incident.
Is business interruption insurance worth it?
Whether to take out BI cover depends on the risks a business faces and the potential impact if something were to go seriously wrong.
For example, a high street store, sharing a property alongside other businesses with residential flats above, suffered a severe fire leaving the building significantly damaged and needing lengthy repairs.
If this business was unable to trade for months, even years, how would it survive or cover the cost of temporary premises? With the right BI cover in place, it would get help – from lost revenue and profit to the costs of finding temporary premises – all of which would leave it in a better position to survive the disruption and get back to trading as usual once repairs have been finished.1
So, when considering whether BI insurance is worth it, think about the most severe risks and incidents that could affect your business. If a flood destroyed your premises, could you carry on trading, would your income be significantly affected, what costs might you encounter that your property insurance wouldn’t cover, and how long might it take your business to recover?
If there’s the possibility of an incident of this nature seriously affecting revenue or profit or even threatening the survival of your business, it may be worth looking at the potential loss of profit and the benefits of having BI cover in place.
Marsh Commercial is trading name of Jelf Insurance Brokers Ltd, which is authorised and regulated by the Financial Conduct Authority (FCA). Not all products and services offered are regulated by the FCA (for details see marshcommercial.co.uk/info/ regulation). Registers in England and Wales number 0837277. Registered Office: 1 Tower Place West, London EC3R 5BU. MC220225368