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
- Understanding policy terms
- Cost-benefit analysis
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
Matthew has 35 years broking and underwriting experience, both as part of the management team at an award-winning independent broker, as National Broking Director and UK Board member at Oval Insurance Broking and as Market Management Director at Arthur J Gallagher.
Matthew is a well-known figure within the insurance market, and, with his experience and connections, our clients benefit by being able to access specialist insurers at reduced distribution costs.
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