Business Interruption Cover & Supply Chain Extensions

Business interruption cover helps protect businesses from financial losses resulting from disruptions to their normal operations – like damage to property following fire or flood, equipment breakdowns or other unforeseen circumstances. There are other disruptions, too, from beyond a business’s premises, like supply chain problems and import/export delays.

Since Covid, supply chain issues have been a big headache for a lot of companies and, married with a slow in consumer spending and a rise in inflation, have caused a lot of disruption. Yet not all business have found these challenging conditions an insurmountable storm; some, like Newcastle-originated Tommy Tippee, who recently announced an 8.7% rise in profits, to 220M, have steered their ship to increasing profit, despite the drag in consumer spend and those continuing supply chain frustrations.

How can businesses large and small prepare for and offset disruption? Is the answer extending your business interruption cover to incorporate wider supply chain implications? Let’s take a detailed look at the importance of supply chain extensions.

Specified suppliers’ extension

Your specified suppliers are, by definition, the ones you specify in your policy, and the ones on which you depend for the smooth operational running of your business. If you don’t receive the right products/services at the right time from your suppliers, you may suffer higher costs, the pain of having to find another (more expensive?) supplier and potential financial loss. Your suppliers may also be relying on their suppliers, and so on, in a domino-effect.

An extension to your business interruption insurance could cover you at supplier level, with the condition that the financial damage caused by your supplier is indemnifiable. (If the damage is not indemnifiable, it is deemed a business risk and not an insurable risk.) If issues start with the suppliers´ supplier, a normal extension will not usually cover this, but, if a special agreement can be made with the insurance company, this risk might be covered.

Specified customers’ extension

Certain key customers or clients whose operations are critical to a business’s own continued success are its ‘specified customers’ in business interruption insurance. These could be major clients whose orders represent a significant portion of the insured's revenue or whose business is crucial for maintaining the stability of the insured's operations. If one of these identified customers experiences a disruption that directly impacts a company’s ability to conduct business, there’s a problem, but a specified customers’ extension can be a valuable safeguard.

This additional coverage can include loss of revenue, and increased expenses or other costs incurred by the insured as a result of the customer's disruption, for example, fire or flood at their premises, financial insolvency or, yes, supply chain interruptions. Anything that renders the customer unable to fulfil its contractual obligations to the insured business.

Import/export issues and challenges

Changes in customs’ regulations, bureaucratic delays at borders and disruptions due to Brexit have caused delays in the movement of goods across UK borders. Delays can impact the timely delivery of products to customers or the receipt of essential supplies for production.

There are also issues with a reduced demand for exports, a rise in tariffs and an increase in red tape. Compliance with new regulatory requirements may require adjustments to business processes, additional administrative burdens and increased costs, but business interruption policies can offer coverage for all of these financial losses, if built in as an extension.

Business continuity planning

A business continuity plan is a comprehensive strategy designed to ensure that a business can continue operating or quickly resume its critical functions in the event of a disruptive incident. By developing and implementing a robust business continuity plan, organisations can enhance their resilience and readiness to withstand disruptions.

Supply chain issues – both supplier and customer originated - can be built into a business’s continuity plan, making sure they are anticipated and catered for, to mitigate frustrations and avoid nasty shocks. The combination of a watertight continuity plan and a comprehensive business interruption strategy is essential.

Your business interruption cover has never been more important, and the extensions incorporated into it are vital in today’s challenging economy. Now is the time to carefully map the risks of your business’s functionality and widen your insurance perspective, to make sure you are adequately covered. Business interruption cover, with the right extensions, can equip your business to weather any financial storm and navigate all of today’s choppy waters.