Business insurance and winter storms

This year’s winter seems to have produced more than its fair share of headlines with snow and ice yet again shutting down most of the north-east. The estimates are still general but, in just the first week of February, the industry reckons it may be facing claims worth more than $1 billion. If the adverse weather conditions continue through 2011, it may be yet another record-breaking year for claims. In practical terms, this means heavy wet snow has built up and brought down roofs and power cables with consequent blackouts. Anything that forces the shut-down of business is bad news. The question is therefore how you should aim to protect your bottom line should some disaster force you to abandon your current building.

One of the more efficient answers is business interruption insurance, sometimes also called business income insurance. The risk is that a fire or natural disaster forces you to relocate while your own premises are repaired. Note the standard condition that the shut-down must be temporary. This coverage is not intended to offer a permanent subsidy to losses following a forced move. It is simply a financial bridge for the time it takes to get your own premises ready for trade. This is rarely sold as a policy in its own right, but is added on to either a more general business property policy or a business-owner’s policy (BOP) if you qualify. BOP is specifically aimed at the small business employing less than 100 in small premises with limited offsite activity.

The insurance covers the loss of profits you would have made if the business had been able to continue trading. This means you have to file detailed financial records, both to get the coverage and then continue it. In particular, you need to be able to show what expenses you would be liable to pay even if you stopped trading, e.g. the rental of telephone and internet services, connection to the electricity supply, etc. You also need to have contingency plans in place, having reasonably clear strategies for relocating while you rebuild. This involves a detailed consideration of practicalities. What exactly is the business? What are the minimum requirements to continue it, e.g. by moving machinery or equipment, finding a place to store the inventory, etc? In some cases, it may be better to cover increased operating costs in the existing building while it is being repaired. Once you understand the economics, you can buy cover against the additional expenses of operating in damaged premises, or of the move to and operating out of temporary accommodation.

Business insurance, particularly small business insurance, is all about assessing the risks with a clear eye. Only if you have done a proper appraisal of the problems should your property be damaged or temporarily made unusable, can you assess exactly how much insurance to buy. In this, remember that another standard term is a two-day waiting period to appraise the realities and approve the decision to stay or move. This is the time to be putting the disaster plan into operation not worrying about what you are going to do.

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