Several disconcerting events like natural disasters, fires, or cyber-attacks can lead to serious interruptions in businesses. A lot of resources are needed to repair a building, get a new location, or stock inventory. Therefore, discontinued business operations can result in an imbalance in cash flow, which may eventually shut down the business. This is a type of operational risk because it hampers a business’s capability to function, and all organizations should make it imperative to find ways to lessen its effects.
What Causes Business Interruption?
Most people have this misconception that only great natural disasters like earthquakes and hurricanes can put their business at risk, but according to research done globally by Allianz Group, only 12% of business interruption claims result from natural disasters. Fires and explosions were the major causes of global claims in recent years. Lessening the effects of risks requires a basic understanding of the level of threats and their impacts.
The following are the causes of major business interruption risks and income loss:
- Water damage
- Crime or vandalism
- Equipment failure
- Natural disasters
- Loss of running water or electricity
Most businesses are prone to the risks mentioned above. Therefore, risk managers must assess these risks, decide which one poses the biggest threat to the business, and take measures that can help prevent these risks.
Strategies to Mitigate Business Interruption Losses
Once the risks have been identified, it is crucial to pick the best strategy. The following are a few strategies that can help mitigate the possibility of suffering a long-term business interruption:
- Installation of sprinkler systems to reduce fire damage.
- Routine machines and equipment checks to prevent unexpected damage.
- Buying from different vendors, so the business isn’t dependent on one person.
- Installation of security cameras and alarms to prevent burglary and vandalism.
- Monitoring the credit scores of suppliers for the slightest signs of financial distress.
Business Interruption and Insurance
Your many efforts as a business owner are never enough to completely stop your business from facing challenges that’ll endanger the business. One additional way to prevent these challenges is buying business insurance that will cover the losses in the long term. Business interruption insurance is the only insurance that considers potential earnings in the evaluation of damages. This coverage cannot be bought separately. Instead, it is sold as part of a bigger policy. Also, it is highly recommended to consult with a professional before buying this policy.
Planning for Contingencies
To reduce business interruption risks, companies must prepare for obstacles and ensure protective plans and measures are implemented. Business owners must be attentive to notice liabilities that can cause disruptions and difficulties in their business. Failure to do so can lead to unnecessary problems in the business, resulting in its untimely end.
Benefits of Business Interruption Insurance
- Covers income lost during the period your business was shut down due to the interruption
- Pays the rent for leased spaces even while your business isn’t operating
- Pays for relocation expenses in case you need to move your business to a new location after your primary location has been rendered unusable by the disaster
- Covers employee wages while you are out of business, thus helping you retain your staff
- Repays outstanding loans or installments thereof till the time you resume your business operations
It is essential to protect your business with adequate coverage to avoid disruptions and challenges. If you need any assistance in getting business interruption insurance, contact our experts at Family Financial Insurance Group in Mesquite, TX, today!