A Look At Business Interruption


How Businesses Can Make a Plan Need to Survive A Disaster

According to the Federal Emergency Management Agency (FEMA), more than 40% of businesses do not reopen after a disaster. Businesses of all types, especially Manufacturing, must define the recovery process to restore its critical business functions following a disaster. A thorough business contingency plan combined with adequate insurance protection will help businesses weather the storm following an interruption to their normal operations.

A look at business interruption

Business Income & Extra Expense Insurance is readily available to businesses today. There are many different ways to structure your insurance protection to suit the needs of your specific operation. For purposes of this article we’ll touch on some general items to consider when determining your business interruption exposure.  

Before getting too far into the intricacies of the numbers it is good for businesses to discuss how long it would take to reopen after a major interruption to their operations. Determining the maximum period of restoration will provide guidance not only when completing a business income worksheet but in other areas of the business interruption planning process. This is not a simple task and will require some analysis.

Areas to focus on could include:

  • Debris Removal
  • Design, Construction
  • Replacing Machinery & Equipment
  • Installing and Testing Equipment
  • Training Replacement Employees
  • Replacing Work-In-Process Inventory

Involvement from the state Fire Marshall, FEMA, EPA, and other interested parties may cause additional delays. Consideration should be given to all possibilities when determining the maximum period of restoration.

If your estimated period of restoration is less than one year, Seasonal Adjustments must be calculated in order to properly address your maximum possible business interruption exposure within that period.            

Payroll expenditures can be covered as a continuing operating expense under certain business income coverage forms. Including this for the entire period of restoration would require a healthy increase to the limit of insurance needed. For businesses with substantial payroll that would not be continued or would be continued for only a limited period following a shutdown of operations (such as hourly workers in unskilled or semiskilled positions who could readily be replaced), this expense may be limited to a certain number of days or excluded entirely using endorsement. 

As you develop your business interruption plan with your management team, it is important to have an experienced insurance professional to consult with.  Our expertise of insurance coverage forms and first hand experience with business interruption claims will provide guidance in developing adequate protection for your business when you need it most.

This article was written by:

Mark Whitlock

Mark WhitlockMark is a partner of Summer & Associates.  He has received a number of insurance designations such as: CIC, CRM, ARM, ARM-P, AIS, AAI, AAI-M, AINS, CLCS. He sets himself apart from the industry competition by being a specialist in property and casualty risk management. Whether the need is in Property/Casualty Insurance, Surety Bonds, or a Comprehensive Risk Management Program, Mark is able to create the Highest Value-Lowest Cost Program available in the Marketplace.  



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