Business interruption claims have long posed major challenges for companies, but the risks are rising. According to Allianz’s 2024 Risk Barometer, business interruption has moved up to the #2 spot in terms of corporate concerns, second only to cyber incidents. And for good reason.
Supply Chain Disruption
As recent supply chain disruptions have shown, it's remarkably easy for a company to get derailed these days. Whether it's a fire, flood, theft or a cyber attack, even a relatively minor incident can snowball into a lengthy ordeal. Rebuilding and reopening might seem straightforward at first, but unforeseen obstacles have a way of emerging.
An Example
For example, a retailer makes an insurance claim after a small fire in their shop. They assumed it would be a routine refit. However, when they were ready to start construction work, they discovered the building was Grade II listed and that complicated renovations. What they thought would take months ended up requiring over two years before the business could reopen - double the indemnity period in their policy.
And this case is far from unique. Due to recent economic turmoil, claims that insurers are closing out now stem from incidents back in 2021. With so many supply and labor issues affecting the UK over the past couple years, claims are routinely taking far longer to resolve than anyone anticipated.
Cyber Business Interruption Risks
Making matters worse, cyber attacks are exposing a weak spot in many BI policies. Most cyber policies have relatively small BI limits, however, it usually doesn’t take long for losses to exceed that threshold, leaving companies without cover for additional interruptions.
The Rising Tide of Costs
As claims drag on for longer, associated costs are multiplying too. It’s not just the direct expenses either. Opportunity costs, inflation and growth trends must also be factored in. If a business spends years recovering from an incident, you have to calculate both the revenue lost during that period, as well as the growth that might have otherwise occurred.
Length of Cover
Given how long claims can take to play out nowadays, having an adequate indemnity period is more critical than ever. In the past, 12 months of BI cover was standard, but that is clearly no longer sufficient in most cases. At least a 2-year (24 month) indemnity period is advisable for most policies and in many cases 3 years (36 months) is advised for those businesses who rely on their premises to generate income. Longer indemnity periods are available.
Declaration Linked Policies
Declaration-linked policies are also growing in popularity as a way to avoid underinsurance issues. With declaration-linked cover, you estimate your gross profits upfront, get charged a preliminary premium and then have a final adjustment at insurance period year-end once actual numbers are in. It greatly reduces the chances of coming up short on your policy limits.
Evolving Risks Require Specialised Expertise
In today’s world, no two companies have identical BI risks or cover needs. You must carefully analyse all revenue streams and loss scenarios to tailor appropriate solutions. As the claims examples here clearly show, even experienced risk managers can miss critical details that leave them over or underinsured.
That’s why having an expert insurance broker to advise you is so invaluable. They understand all the nuances and uncertainties inherent in business interruption exposure. And they will thoroughly assess your unique situation to build a customised insurance programme that protects your balance sheet and finances.
Don’t leave anything to chance. With business interruption threats increasing, make sure your cover keeps pace. Consult an expert insurance broker today to lock-in protection for tomorrow.
