Business Interruption Insurance-The Coverage No Company Can Afford To Be Without


According to a recent report from the National Center for The Middle Market, 21% of Middle Market businesses have experienced a business interruption loss as the result of damage to their facilities and of this number, only 77% completely recover from this loss.  Every company’s worst nightmare is a disaster striking, causing significant damage to its infrastructure and a shutdown of operations. The damage to buildings and contents are just the tips of the icebergs. The resulting loss of business income and continuing expenses that continue during the rebuilding can be far greater than the cost to repair the damage. Business Interruption insurance can be the difference between being able to focus on strategically planning the company’s next steps while rebuilding or having to permanently close the doors.  With that said, simply having Business Interruption coverage may not provide the coverage you need following a loss, therefore, it is important to make sure you have the appropriate language and limits in place prior to a loss.

What Does Business Interruption Insurance Cover?

Business Interruption covers loss of income and continuing expenses occurring from direct damage to your facility from an insured peril or loss.  The perils insured by business interruption coverage forms typically track the coverages provided by the policy for loss to real and personal property.

Periods of Recovery-Why Extensions are Essential

One important factor to evaluate when purchasing this coverage is to understand the “Period of Restoration.” Depending on policy language, it may only provide coverage during the expectedtime to make repairs to the damaged property. If repairs take longer than expected or obstacles slow down the rebuilding process, companies could find their coverage ending before repairs are completed and operations are resumed. Coverage should also include extended period of business income or indemnity wording. Typically, coverage begins the date of the loss and ends when repairs are completed or when business operations return to normal. The extended period of indemnity provides loss of income coverage for the business for a specific period of time if the revenues have not yet returned to pre-loss levels. 

Factors that Determine the Payout

When a business interruption loss occurs, a variety of factors come into play when adjusting and settling a loss of income claim. In the simplest terms, the claims process is essentially the determination of the profit that lost along with expenses that continued during the shutdown or reduction in operations. 

In today’s world and on time delivery methods, a business can suffer a loss if a supplier has a loss and cannot provide critical materials to a business. In these cases, a business can suffer a loss of income even though their facilities are still operational. A coverage called Contingent Business Interruption is available to protect a business from such losses. This protects a business from loss in production when a critical supplier suffers an insured loss and cannot provide supplies.

How to Ensure a Claim Is Processed as Efficiently as Possible

Communication is key! As with any insurance claim, the key to having a claim processed quickly is to be armed with details.  The more efficient the information can be collected, reported, and transferred, the more efficient the claim can be processed. With most recovery periods lasting less than six months, it is important for businesses to have a Business Continuity Plan (BCP) prepared ahead of time, so when disaster strikes, everyone knows where to focus their attention and production losses are kept to an absolute minimum.  When a BCP is created, it is key to identify alternative sources so that supply scarcity is mitigated as much as possible.  It is imperative to keep records ahead of time, especially regarding financial data, since so much of the claim will hinge on the financial data points within the company. 

When dealing with Business Insurance there seems to be a plethora of insurance coverages that a company can purchase, but Business Interruption should be at the top of the list. Most businesses believe they are safeguarded from disaster and can implement plans to reduce their risk following a disaster occurring. However, having a comprehensive Business Interruption policy that is written specifically for a company’s needs is vital and will provide the business with a lifeline of income and resources when disaster strikes. 

For more information on how to determine the amount of Business Interruption coverage to purchase and structure the coverage to meet your needs, please contact the professionals at Ironwood Insurance Services.