Business Interruption Insurance and Hurricane Season

As hurricane season gets underway, it is important to prepare your business in every way possible. Business owners in hurricane prone areas often find out—after the disaster—that their coverage is not adequate.

Your business property or business owner’s policies cover the cost of physical damage to structures, equipment, inventories and material goods in the event of a loss. But imagine the additional losses you might incur if your business is unable to operate for an extended period of time due to a hurricane or other natural disaster. Business interruption insurance pays the reasonably approximated revenues a business misses when it is unable to operate due to a disaster.

Business interruption insurance is typically a rider on a property or business owner’s policy. To get business interruption coverage added to an existing business policy, you must document your current net income and the types of interruptions you want to be covered for.

In areas where hurricanes and tropical storms happen, it is important for both your standard business policy and your business interruption policy to cover damage caused by floods. In addition, loss of utilities is often excluded from standard business interruption policies—particularly those caused by downed power lines. Many business owners on the East Coast found this out too late after Hurricane Sandy devastated their businesses. If you want coverage for loss of utilities, it will probably need to be added as a rider.

To calculate the ideal amount of business interruption coverage for your business, quantify how your business would be affected by a catastrophe. Include all of the costs that you would continue to incur even if your business was not operational. This might include loan or lease payments, taxes, and so on. Do you want to keep workers on the payroll while you rebuild? If yes, then your business interruption insurance should reimburse you for those salaries during downtime.

It is also advisable to include an “extra expenses” rider to cover costs that may be unexpected or that were not present at the time you purchased your policy. This rider might cover higher than expected building materials costs after a hurricane.

Don’t forget to evaluate the potential risks to your company from suppliers and other partners who could be affected by a storm. Even if your business survives, what if one of your suppliers is wiped out? How will that affect your revenues? These risks can also be covered by business interruption insurance.

Get Ready

There are a few steps you can take to be sure you are ready in the event that a hurricane strikes your community.

• Secure documents and electronic data. Documents and data should be backed up off site in secure location far away from any potential storm danger. This will help you resume operations quickly and help provide any information necessary to prove a claim.
• Review your coverage. It is generally best to address these issues every year at renewal time, but with hurricane season approaching, there is still time to evaluate your needs and make adjustments.