Beware. Business Interruption insurance can give clients a false sense of security. In the perfect world, one standard policy would cover all companies. The reality is, multi-layered companies (e.g. a manufacturing facility) have more exposures than a single mom-and-pop store. Simply put, a business that has more to lose financially needs more coverage for its survival.
Assessing the economic impact of a business interruption is very complex. Brokers and agents should have their clients consult with a controller or an accountant to gauge how much coverage they need. Understanding potential loss of income is essential to having the right insurance.
When customizing a Business Interruption policy, you should know:
- Most policies require a waiting period before coverage starts.
- Business Interruption policies cover losses due to direct physical damage to a company’s property. They do not cover damages caused by ancillary factors such as power outages.
- It is doubtful that communicable disease (i.e. Ebola) coverage is provided in the standard property policy due to the need for direct physical damage resulting from a peril insured. While all base policy forms provide coverage for Ingress/Egress, and Civil or Military Authority, the coverage provided is triggered by a direct physical loss or damage resulting from a peril insured under the policy.
- Policies can cover situations where your client’s business is interrupted due to a supplier or vendor being unable to provide them with essential parts/services (Contingent Business Interruption).
- Policies can be extended to cover almost anything. For example, let’s say a client’s numbers are below what it was before the business interruption. The proper policy would cover a business until sales return to pre-interruption levels.
- It is important to work with a specialty insurance wholesaler who offers a full range of Business Interruption insurance. Only then will you be sure your clients are properly protected.
