Business Interruption Insurance
It’s probably the most hard working business owners’ worst nightmare: The call from an employee, the alarm-company or a neighboring business letting them know that something bad has happened (flood, fire, earthquake, alien invasion- just making sure you’re paying attention) and their business will need be shut down while the insurance company rebuilds, repairs and replaces the damaged property.
There’s a slight problem. How will your business continue to generate revenue while it is out of commission? In the case of fire damage, it’s pretty difficult for customers to purchase items after your premises and inventory has been burned to a crisp. Also, how are you going to continue to pay your key employees and perhaps most importantly, how will you maintain your own level of profit so you can continue to meet your personal financial obligations?
Business Interruption coverage is one of the ultimate endorsements, providing business owners with vital funds following an insured loss when their revenue has been negatively affected. Lucky for you nothing bad has happened yet, so let’s briefly discuss some of the basic types of coverage available.
Gross Earnings - This coverage will stop paying as soon as your doors have opened again, regardless if your customers have started buying from the competition across the road while you were closed. How long will it take to win your clients back? For this reason, Gross Earnings coverage is also known as “sink or swim” insurance, because of its intrinsic nature. *Note: I made that last part up, but you get my point.
Profits Form - This coverage has a much longer period of indemnity, usually 12 – 24 months and will continue to pay, until your revenue is back on par with where it was before the loss occurred. This can be critical! Instead of the company throwing you back in the deep end of the pool saying “Have a nice day- sink or swim!” you get a nice little proverbial boat, complete with oars and a life jacket. This coverage is usually only a few cents more per hundred dollars worth of interruption insurance; well worth it in many cases.
Contingent Business Interruption - Do you rely heavily on a major supplier for products in your business? Enter the world of Contingent Business Interruption. With this coverage, if one of your listed suppliers suffers the same loss that you are insured for (fire, flood, earthquake, etc.) and your revenue is affected, coverage can respond. Do you have a major supplier in Alberta or Ontario in the flood prone regions or in an earthquake prone area in B.C.? If so, talk to your broker about it. This coverage is usually not that much extra to add on, and seems to get missed frequently.
Extra Expense - If your store goes up in flames this coverage will respond so you can operate temporarily out of another location, such as setting up phone lines, point of sale systems, etc. and other things to reduce disturbance to your business. If your business has specialized equipment, it’s a good idea to make sure there is enough Extra Expense so can expedite in specialized rental equipment. When we’re talking about flying in and setting up heavy equipment, this can get expensive quickly so it is imperative that adequate Extra Expense coverage is in place. This coverage can also pay to advertise your temporary location in the media and do everything possible in order to minimize losses and protect your business. In turn, this will also help to keep your customers happy so you don’t lose them to the competition while you’re closed and have to win them back later. A good example of this type of disaster planning would be Tim Hortons. If a loss happens at one of their locations, in most cases and within 24 hours they can have a temporary location operating with a limited menu operating out of an ATCO trailer on the same site. In return, this keeps many of their customers happy, without their buying patterns shifting to the competition or other locations.
Payroll - The cost of losing staff that are already trained, productive and efficient can be a major blow to a business and the bottom line if you have to re-train. If you don’t want to lose your key staff to the competition while your business is being rebuilt, ensure adequate amounts of payroll coverage is in place. If you consider all of your staff to be key employees, then let your broker know.
Equipment Breakdown / Boiler and Machinery - The breakdown of your equipment can cause a major loss of revenue. This coverage can help expedite rental equipment to the business while the original equipment is being repaired and provides interruption coverage. There are a host of excellent companies that offer this coverage for extremely reasonable rates covering everything from telephone lines, fax machines, equipment and machinery, refrigeration units, computer hardware and others.
Congratulations! By learning about business interruption coverage, you are one step closer to adding another weapon to your arsenal of financial protection.
*This column is intended for entertainment/informative purposes only and is not intended to act as a substitute for seeking the advice of a licensed Insurance Broker or other qualified professional. Coverage is subject to the policy terms, conditions and exclusions – please refer to policy documents– specific circumstances may alter the availability of coverage.
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