The Importance of Business Interruption Insurance

Imagine if an unexpected event meant you were unable to carry out your business for a certain period of time… Imagine if a fire, flood or other disaster meant you couldn’t operate from your premises and had to cease trading… Could your business survive such a halt? Would it be able to sustain the resulting financial loss? It may be time to look into Business Interruption Insurance

Many small businesses have had to close after making a claim following an unforeseen incident. Indeed, around 44% of SMEs don’t have any insurance cover at all! That’s more than 2.4 million companies operating today without insurance of any kind to protect them.

There has been a significant surge in business interruption claims, recently, with 21% of companies reporting disruptions, but 62% of businesses either lack business interruption insurance or are uncertain about its inclusion in their policies.

Don’t be one of them! Here’s why your business needs business interruption insurance:

What is a business interruption policy?

Business interruption policies are designed to protect against the financial loss a business may face after having to make a claim following physical damage. Your buildings insurance will cover the damage itself, but business interruption protects the continuation of your business interests by covering the income it would have received had the incident not happened at all.

The policy incorporates something known as the Material Damage Proviso. This states that your claim must be related to physical damage at your place of work or to the materials, stock and machinery you need in order to work.

Why business interruption insurance is vital for SMEs

Financial protection against unforeseen events

Natural disasters, fires, major equipment breakdown or even pandemics can disrupt an SME's operations unexpectedly. Business interruption insurance provides financial support to cover lost income and fixed expenses, such as rent and payroll, during the period the business is unable to operate as usual. This could be the lifeline that keeps your business afloat during difficult times.

Maintaining cash flow

Cash flow is the lifeblood of any SME. When operations are halted, revenue streams dry up, but financial obligations continue to accumulate. Business interruption insurance ensures that cash flow is maintained, enabling your business to meet its financial commitments and avoid the risk of bankruptcy or permanent closure.

Recovery and rebuilding support

Recovering from a significant business interruption often involves more than just resuming operations. It may require rebuilding physical premises, replacing equipment or even re-establishing market presence. Insurance proceeds can help cover these costs, reducing the financial burden on the business owner and speeding up the recovery process.

Customer retention

For SMEs, maintaining customer trust and loyalty is paramount. Delays in service or product delivery due to business interruptions can lead to customer dissatisfaction and possible exodus. Business interruption insurance allows for the timely fulfilment of commitments or even temporary solutions to serve customers, thereby preserving your business’s reputation and customer base.

Risk management strategy

Incorporating business interruption insurance into an SME's risk management strategy demonstrates foresight and responsible management. It not only protects your business's financial health but also its employees, stakeholders and supply chain. Having such insurance can also be a requirement in certain contracts, leases or by lenders, illustrating your business's reliability and commitment to continuity.

Key considerations for SMEs

• Assessment of needs

SMEs should work with insurance professionals to assess their specific risks and coverage needs, ensuring that their particular policy covers the most likely scenarios that could impact their operations.

• Understanding policy terms

It’s crucial to understand what is and isn’t covered under the policy, including any exclusions or limitations. For instance, some policies may not cover interruptions due to pandemics or cyber-attacks unless specifically added.

• Cost-benefit analysis

While business interruption insurance represents an additional cost, the benefits typically far outweigh the premiums, especially when considering the potential financial impact of a prolonged shutdown.

The risks of going without

Foregoing business interruption insurance is a gamble that can lead to severe financial strain or even the end of an SME. Without the safety net it provides, your business may find it impossible to recover from a significant interruption, leading to permanent closure in the worst cases.

For SMEs, the question isn't whether they can afford to have business interruption insurance, but whether they can afford not to! In times of increasing unpredictability, such insurance is not just a safety measure, it's a strategic investment in your business's future viability and resilience. By ensuring financial protection against unforeseen events, maintaining essential cash flow and supporting recovery efforts, business interruption insurance is indispensable for SMEs aiming to thrive in today’s dynamic and challenging business environment.

If you have a business, you need business interruption insurance!

Any questions? Please don’t hesitate to contact one of our team.

Freddy.Crowe@ascendbroking.co.uk  |  Telephone: 01245 975242