May 24, 2023

This paid piece is sponsored by Marsh McLennan Agency.

By Sean Mayer

When we think about business interruption, we imagine damage by fires, storms or accidents. But in today’s world, disruption can come in the form of global health incidents or cybercrime attacks — even train derailments can cause disruption to your operations and supply chains.

The Federal Emergency Management Agency estimates that nearly 25 percent of businesses fail to reopen following a natural disaster. In addition, more than one in three businesses was affected by ransomware in 2021, and more than half of small businesses that experience a cyberattack will go under within six months. A 2021 ITIC survey estimated that 91 percent of midsized and large companies lose upward of $300,000 an hour because of downtime.

Business interruption insurance coverage is a crucial component of a comprehensive safety plan. If executed properly, this often-misunderstood coverage can save your business from irreparable harm and even keep you from going out of business.

What is business interruption coverage?

Business interruption, more commonly referred to as business income coverage, provides income replacement to a business when income is lost in a disaster. There are three requirements that must be met for an event to qualify for coverage under a standard business income policy:

A loss of income created by:

• A physical loss or damage to property covered under the policy.
• The loss takes place during the policy period and within the territorial provisions of the policy.
• The loss must be a result of a peril not otherwise excluded by the policy.

Coverage that fits your business

Business interruption covers most expenses that would be required to keep the business open, even though you may be limited or prevented from doing so. In other words, business interruption keeps the proverbial till ringing.

Some of the costs it can cover are:

• Lost income.
• Payroll expenses.
• Ongoing bills for utilities, financing.

This coverage is not “one size fits all,” so it’s critical to have a discussion about your company’s unique exposures to determine how to tailor the coverage to meet your needs.

Cyber coverage is another element of a business continuity plan that requires careful consideration. Cyber incidents can lead to a loss of income and a temporary shutdown of operations.

Downtime can equal multiple losses

Imagine if a piece of production equipment failed, and this resulted in the entire piece of equipment needing to be replaced. Your production could be halted for weeks while you wait for the new equipment to arrive and be installed.

If you continued to pay employees and vendors during the downtime but could not produce product, several additional business operation expenses would add up. Your total losses potentially could amount to millions.

Insurance adjusters often interpret the coverage differently from how an insured might, and this can affect what you think you are owed versus the property or equipment values determined by adjustors and carriers. It’s important to have a risk adviser who can coordinate with the agency’s claims team to be your advocate during this process.

When your business is down, a responsive and knowledgeable claims team can have a tremendous impact. Submitting a claim can be complex and time-consuming, but time is of the essence when you need to get back up and running.

Marsh McLennan Agency can help

Many businesses are not insured properly for an event that could result in downtime. Business continuity and emergency planning are key elements of a successful strategy for keeping your business afloat. It’s essential to have a plan in place to prevent an interruption from happening at all, or once it does happen, to get you up and running as soon as possible.

By dedicating time to this topic before disaster strikes and reviewing your coverage annually or in times when you anticipate major changes to your business, you will ensure that your organization doesn’t become a statistic. Reach out to your local MMA representative for assistance.

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