Canada experiences a number of extreme weather events and natural disasters every year. It is not uncommon for a business to be forced to shut down due to a burst pipe in the building that causes extreme water damage. Business Interruption (BI) Insurance is an important policy that provides relief if an unforeseen event impacts your small business. Learn how it works, what it includes, and when to consider BI insurance.
An often-overlooked policy, BI can provide coverage for the income lost when your normal business operations are interrupted or stopped altogether. This interruption or damage must be caused by or be a direct result of a covered cause of loss, which are the same causes of loss found in your Commercial Property policy. There must be visible physical damage to your business property for it to apply.
Causes of disruption can include:
- Natural disasters (storms, flooding, tornadoes, wildfires)
- Damage to building elements (burst pipes, water leaks, vandalism)
Other types of insurance may cover additional disruptions to your business:
- Contingent Business Interruption
- This will provide coverage for transportation failures, supply chain failures, losses at locations other than your own that affect your business and more.
- Note: For this type of insurance to apply, the disruption to your supplier must be tied to a physical property claim.
- Extra Expense Coverage
- These are the additional expenses above normal operating costs that allow you to get your business up and running again as soon as possible. This would include paying your employees overtime, hiring temporary staff or leasing equipment.
- Cyber Insurance
- Cyber Insurance paired with BI provides coverage when hacking and cyber attacks force your business to a halt.
- Equipment Breakdown Insurance
- This will cover equipment and machinery that needs to be repaired or replaced and includes BI coverage if your business operations are stopped due to the loss of equipment.
BI can cover business costs, utility payments, property taxes, the loss of income during repairs and losses during the ramp up period back to normal operations after reopening. BI insurance can also be extended to include extra expense coverage for costs that are additional to normal operating expenses, and temporary location cover for expenses associated with moving to a temporary location.
BI insurance is not to be confused with the basic coverage in standard Business Property insurance, which will cover your contents and premises when disaster strikes, but not your loss of income suffered as a result of the interruption.
If your business has to shut down completely while your property is undergoing repairs, you could risk damaging your reputation or losing clients to your competitors. That’s why a quick turnaround time after a disaster is essential. Downtime can come at a large cost, especially for businesses involved in multi-tiered supply chains. In fact, the US’s Federal Emergency Management Agency (FEMA) found that up to 40% of businesses never reopen after a disaster or a severe claim. It is essential to have BI insurance in place to survive the operational downtime.
A restoration period is the length of time that your insurance policy will help cover your costs to restore your property and business to its original condition. Careful considerations need to be taken when calculating your restoration period and your expenses (and therefore your BI policy limit). A miscalculation could result in a shortage of coverage from your BI claim.
BI coverage varies and doesn’t always cover everything that you might be expecting it to, so it’s best to consult with your broker to make sure your BI insurance covers the appropriate exposures to your business.
If you have any questions about how you can benefit from adding BI to your overall insurance portfolio, feel free to contact us at 1-866-387-FUSE (3873) or get started on your business interruption insurance quote now.