Following a major property loss, the business interruption losses can often exceed the cost of the property damage. Business interruption insurance seeks to compensate clients for their net loss of profit whilst their property damage is being repaired or replaced to enable the client to resume business.
Unfortunately, in today’s competitive market, the client’s customers can’t wait and are usually forced to go elsewhere. The result is the loss of market share and often the rebuilding of premises can no longer be financially justified. The years of hard work in building up a business are lost… jobs are lost and an insurance payout is poor compensation. In addition, the insurers have also lost a customer making this very much a Lose - Lose situation.
The initial step is to identify the main business risk exposures and business bottlenecks with a Business Impact Analysis. Business managers are generally well aware and concerned about the major business risk exposures they have to live with. A number of methodologies can be used for risk identification from questionnaires to structured risk storming exercises. A Business Impact Analysis can then be prepared to determine the correct priority of risk exposures and their need for risk treatment.
We need to fully understand what are the ‘Show Stoppers’ i.e. the critical operations for a business to continue. Usually the most obvious exposures are already identified and may also be provided with some risk control measures. However, a BCP can cover all risk exposures known and unknown.
Underwriters are concerned about expensive overseas or uniquely manufactured equipment which may be difficult to replace and hence result in a major business interruption loss. Often management expertise, maintenance controls and supply or spares have already reduced the likelihood and the severity of the possible loss exposure.
The Underwriting Report mentioned in the previous section would also provide comprehensive reporting of the major business risk exposures and risk control procedures in place.
The BIA will become an important live document which can grow in usefulness and importance and can also be useful to determine effective budget expenditure to minimise business bottlenecks and to better facilitate business growth.
Business losses are lost business opportunities. There is no insurance protection for loss of market share or for poor business management.
