FAIL TO PREPARE AND YOU’LL PREPARE TO FAIL:

BUSINESS INTERRUPTION COVER KEY FOR SURVIVAL

Business interruption (BI) is consistently recognised as a top threat for businesses across the globe, and with good reason. The issues that disrupt trading and interrupt operations are becoming more diverse and complex, with businesses having to grapple with increasingly longer lists of risk exposures.

KEY TRENDS

  • Business interruption is consistently recognised as a top threat for businesses across the globe.
  • The issues that disrupt trading and interrupt operations are becoming more diverse and complex.
  • Companies without the requisite contingency plans and risk management programs now have to take on higher deductibles and/or higher premiums.
  • Insurers are increasingly seeking proof that companies have risk mitigation strategies in place.

Research by Allianz published earlier this year shows that the average value of a BI claim (in some cases) reached up to US$6.7 million. It is unsurprising then that companies without business interruption insurance are often slow to recover from interruptions to trading or unable to recover altogether.


In addition to this, companies without the requisite contingency plans and risk management programs now have to take on higher deductibles and/or higher premiums, or face difficulty in getting cover from insurers altogether.


The driver behind the growing insurer scrutiny is the availability of capital and a growing awareness of the cost of BI claims. Business interruption risk can be physical, reputational, digital and financial, and insurers are increasingly seeking proof that companies understand this and have risk mitigation strategies in place. These strategies can cover everything from record keeping through to the strength and impact of the risk management culture, and what detailed contingency plans are in place.


Over and above the value of physical assets, careful consideration should also be given to how a disruption in trading could affect cashflow, and the length of time for potential recovery. The timing and indemnity level of a BI policy should reflect this; it could mean the difference between a company weathering an event or ceasing business.

Average value of a Business Interruption claim reached up to US$6.7m
Damage to physical property alone can cause trading to cease for months

A client case study from March 2017 demonstrates that damage to physical property alone can cause trading to cease for months, suspending revenue and cashflow while expenses continue to accrue. The client, a key player in the Australian hotel and hospitality sector, had taken the time to invest effort in partnering with an independent consultant to ensure they had the correct levels of cover. Their foresight in adopting such a strategic approach was borne out by their ability to weather the storm, both literally and metaphorically.


As risks evolve and the market continues to transition, demonstrating sound risk management strategies and clear contingency plans remain key to securing cover and surviving insurable events.

Ryan Gooley headshot

Ryan Gooley

Manager – Corporate

T: (02) 9242 2036

M: 0407 887 470

E: ryan.gooley@ajg.com.au

Sources:

Allianz Risk Barometer: Top Business Risks for 2019, Allianz Global Corporate & Specialty