A Guide to Business Interruption Insurance

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Most commercial insurance policies cover a broad range of perils, including fire, natural disasters, and cyberattacks. However, these hazards usually do more harm that causes the direct loss of assets or money. They can also interfere with your business operations, leading to the loss of income and inability to pay employees, suppliers, and other creditors. Here’s a look at common causes of business interruption and how to avert financial loss if a hazard interrupts your operations.

What Is Business Interruption?

Business interruption is the inability to continue operating your company after your premises, inventory or major equipment is damaged or otherwise lost in a disaster.

What Are the Most Common Causes of Business Interruption?

Any business can suffer interruption, from grocery and clothing to auto spare parts and IT equipment stores. Here are the major disastrous events that can cause temporary business closure:

  • Fire or explosion causing property damage
  • Natural catastrophes like storm or water damage or a tree falling on the office roof
  • Supply chain failure leading to inventory shortfalls
  • Cybercrime like denial of service attacks
  • Breakdown of major, mission-critical machinery

8 Tips to Mitigate Business Interruption

Here are some strategies to ensure business continuity even after major disasters:

  • Install a fire sprinkler system to protect your business premises
  • Maintain mission-critical equipment regularly to avert sudden failure
  • Ensure topnotch supply chain management and incorporate multiple suppliers
  • Install commercial security systems, including surveillance cameras and burglar alarms
  • If you share the company’s ownership with others, ensure a co-ownership contract stipulating each co-owner’s responsibilities, rights, and liabilities.
  • Streamline your cash flow to avert interruptions
  • Have formal contracts with key stakeholders, including suppliers, contractors, and even customers where applicable. Legally enforceable agreements can help you avoid disputes that can cause business interruption.
  • Protect your digital assets, website, software, or IT system with up-to-date cybersecurity tools and strategies like 128-bit AES encryption, firewalls, and anti-malware software.

What Impact Do Cyber Attacks Have on Business?

Your IT system remains a target for data breaches and denial of service attacks that could cause you substantial financial losses. According to a recent Allianz Global Corporate & Specialty report, business interruption was responsible for about 60% of cyber claims between 2015 and 2020. Thus, you should beware of alarmingly increasing cyberattack incidences if you own a business website or use commercial software.

Hacking can interfere with your business operations in ways such as:

  • Remotely breaching your website and making it unusable
  • Seizing and locking you and your customers out of your website after executing a distributed denial of service (DDoS) ransom attack
  • Infecting your hardware with malicious programs like viruses or worms that delete mission-critical business files or data

How Does Business Interruption Insurance Work?

Business interruption insurance is one of the most crucial commercial coverages. It can pay to replace lost revenue if you have to temporarily halt company operations after suffering a covered loss like fire damage to your office space. Without this coverage, a small business may be unable to ever resume operations after a major interruption due to break-ins, infernos, or floods. Be sure you have sufficient coverage for all risks that are relevant to your industry and business type.

Besides replacing lost income, this policy can pay for temporary operating expenses such as:

  • Debts (mortgage and loan payments)
  • Taxes
  • Salaries for your employees
  • Any temporary business relocation costs
  • Monthly rent

With the unpredictability of disastrous events like fire, cyber-attack, or natural catastrophes, you should have adequate loss-prevention measures in place in case of business interruption. At Hoffman Brown Company, we always keep an eye out for insights on how our clients can protect their enterprises. Contact us today to explore your business interruption insurance coverage options.