Business Interruption…What is it?

In this instalment, I hope to simplify Business Interruption Insurance and why it’s essential that as a Business Owner you should have this type of protection added to your existing commercial insurance policy.

So, picture the scene… you’ve invested a huge amount of time and money into establishing a profitable business with a  fantastic loyal client database that come to you for the goods and services you offer. Now think what would happen if you were unable to open for business due to an event that was out of your control like fire? Where would your customers go? How would you still earn an income? Who will take care of the continuing expenses such as utility bills, bank loans, staff payroll and so on? How am I going to get back into business as quick as possible? Who will cover the costs for relocation, advertising, stock, equipment etc.?
These are all questions that are typically asked after the event and for those that don’t have Business Interruption, it’s often difficult and almost impossible to recover from such a devastating loss. That’s why it’s so important for any prudent and diligent business owner to have a contingency plan that responds to such unforeseen events.
Not Just For Physical Loss
Business Interruption Insurance doesn’t just cover physical loss to your own establishment either. What if the neighboring Walmart or Canadian Tire shuts down due to smoke or water damage? Losses caused to such significant anchoring properties can seriously affect the earnings of surrounding businesses and in many cases, prolonged interruption of important neighboring businesses can often lead to the failure of those businesses in close proximity.
There are also many other sources that a business can suffer from interruption such as; “Failure or breakdown of public utilities” (think back to 2003 when 10 million in Ontario were without power due to the deep freeze), “Losses caused to property of a major supplier or customer” (if you rely heavily on one manufacturer for parts or one major customer, what happens if they suffer a loss and can no longer do business with your company) “Transportation related accidents” (Think of the major railways accidents or toxic spills that cause’s mass evacuation) “Ancillary Causes” (strikes and employee lockouts) to name but a few.
These are all important factors when looking at a contingency plan and Business Interruption Insurance should be No.1 on your list as an essential component to ensure survival after a loss in such a competitive market.
What does Business Interruption cover?
Business Interruption is designed to compensate the insured for the financial impact caused by interruption to that business. The intention is to restore the business to the same financial position as if the loss had not occurred, subject to the terms and conditions of the policy. Simply put, Business Interruption covers for the necessary continuing expenses and lost profits due to partial or total interruption to the business.
So if you are unfortunate enough to suffer a loss, as a business owner you will still have ongoing expenses like payroll, mortgage and bank loans that need to be paid. Each day the business is closed you will be losing profits to which Business Interruption would respond. Then you may have other expenses such as setting up a temporary location. Marketing costs notifying existing customers that you have temporarily moved. Hiring systems and and equipment to continue operations. These are just a few examples however I would always recommend you speak with a licensed professional if you are considering adding Business Interruption to your existing policy.
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