As we navigate another hurricane season, businesses along the Gulf Coast, Eastern Seaboard, and other vulnerable regions must prepare for potential disruptions. Beyond physical damage, hurricanes can lead to prolonged power outages, supply chain breakdowns, and restricted access to facilities, all of which can halt operations and impact revenue. Business interruption (BI) insurance is a crucial element in your disaster preparedness plan. Here are seven key components to consider for effective BI coverage:
1. Values and Limits: Are You Adequately Covered?
Hurricanes can result in extended shutdowns. Your BI policy should accurately reflect your business income exposure over a realistic recovery period. Under-insuring can leave you vulnerable, while over-insuring can inflate premiums.
Tips
- Conduct an annual review of your business interruption values, values-at-risk, and policy limits — especially before hurricane season — to ensure accurate reflection of current revenue, expenses (including payroll), and recovery timelines.
- Pay close attention to contingent business interruption and dependent property loss exposures. Adjust your policy structure and limits to effectively manage these risks, ensuring fair financial recovery should a loss occur.
- For more details on business interruption values and exposure analysis, read Protect Your Company Through Accurate and Timely Business Interruption Insurance Values and Exposure Analysis.
2. Deductibles: Navigating Methods of Valuation and Their Impact
BI policies often include a waiting period before coverage begins, which can be significant. Some policies determine deductibles based on a percentage of the insured value or average daily value. For contingent and dependent losses, using a percentage of the insured value or average daily values adds complexity to how deductibles are calculated and applied. Each approach can significantly affect the deductible amount.
Tips
- Gain a comprehensive understanding of your deductible structure and its impact during a loss scenario to enhance recovery planning. For instance, hurricane deductibles can vary and may be higher based on the property's location.
- Review and compare different deductible options to determine which structure best aligns with your financial risk tolerance and operational needs.
3. Ingress/Egress: Access Challenges
Hurricanes can cause road closures, evacuations, or restricted access, even if your property is not damaged. Ingress/Egress coverage protects you when your business is inaccessible due to storm-related conditions.
Tips
- Confirm your policy includes this coverage and understand how the coverage is triggered and its duration (e.g., 30 days).
- Determine if this coverage extends to other coverages, like contingent business interruption and dependent properties.
4. CBI and Dependent Properties: Supply Chain Protection
A hurricane impacting a key supplier or customer — even in another state — can affect your operations. Contingent business interruption (CBI) coverage protects against income loss due to third-party disruptions.
Tips
- Identify critical suppliers, customers, and dependencies in hurricane-prone areas and ensure your policy includes CBI and/or dependent property coverage that attaches to these entities.
- Understand policy terms regarding direct and indirect impacts, tier responses, sub-limits, and deductible applications to prevent surprises during a CBI or dependent property loss.
5. Service Interruption: Utility Outages
Hurricanes can knock out power, water, internet, and other essential services. Service Interruption coverage helps cover losses from utility outages, even if your building is unaffected.
Tips
- Verify that your policy includes utility service interruption and covers overhead lines, not just underground infrastructure.
- Check for any waiting periods (e.g., 12 hours) and determine their impact on business interruption value.
- Determine if this coverage applies to other coverage extensions, like contingent business interruption and dependent properties.
6. Civil Authority: Navigating Government-Mandated Closures
Civil authority coverage is crucial when government actions, like mandatory evacuations or road closures, prevent access to your business premises. This coverage applies even if your property is not physically damaged, providing financial protection during these enforced shutdowns.
Tips
- Ensure your policy includes civil authority coverage, specifying the conditions under which it applies, such as the distance from the event causing the order.
- Review any limitations or waiting periods associated with this coverage to understand its impact on your business continuity plans.
- Determine if this coverage applies to other coverage extensions, like contingent business interruption and dependent properties.
7. Tabletop Exercises: Enhance Preparedness
Integrating tabletop exercises into your planning process can further enhance your preparedness and ensure comprehensive coverage across all aspects of your strategy. Regularly conduct these exercises with key stakeholders to simulate potential scenarios related to each component of your BI insurance. This proactive approach helps identify gaps or areas for improvement, ensuring your business is ready to face any challenges that arise during hurricane season.
Final Thoughts: Get Ready Before the Storm Arrives
Hurricane season tests your business's resilience and the adequacy of your insurance policy's coverage and limits. While physical damage is the most visible threat, the financial impact of operational downtime can be equally severe. By thoroughly reviewing and optimizing your BI insurance — especially focusing on these seven components — you will be better prepared to weather the storm with increased confidence and stability.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
