By Maureen Werther
What would happen to a business if an unforeseen disaster struck? Are businesses prepared to weather the storm and rebuild without breaking the bank? Is a business eligible for business interruption insurance?
Those are some important questions business owners need to know about their coverage.
Business interruption insurance is the part of a policy helps businesses that may suffer damage from a fire, flood, or other type of disaster. It can be as important to your business as fire insurance.
For some businesses, a prolonged shutdown following a loss or damage can spell doom. Having the resources to rebuild and re-open as quickly as possible may mean the difference between a quick recovery and starting over again.
John O’Brien, owner of O’Brien Insurance Agency in Glens Falls, said business interruption insurance is typically part of a package policy. It covers overhead, loss of revenue coming through the door, taxes and other costs that continue to come due despite the inability to function and generate revenue.
O’Brien said while business interruption insurance will cover lost income, it will not cover lost profits. He said not all businesses are automatically covered by business interruption insurance. Some businesses, like automotive repair shops or gas stations, are more difficult to cover for the simple reason that they could not just pick up and do the work elsewhere.
Conversely, a business like an insurance agency or an accountant’s office could suffer from something like a fire or water damage and re-open the next day in a nearby coffee shop. Their data and customer information is already backed up on the cloud or a secure server and all they would need to be back in business is a new laptop and a phone.
The other issue is an industry’s greater risk and potential for liability. Gas stations and auto repair shops have buried tanks and waste oil, with potential for leaks and other issues, all of which factor into the costs of insurance and the insurer’s decision to cover a particular type of business.
Business interruption is particularly helpful in keeping key employees during a prolonged down time for renovations and repairs. Most repairs and renovations following a major catastrophe can take six months or longer. For a restaurant owner, for example, it would be important to retain the chef while repairs are being made. Business interruption insurance will pay the salaries of key employees to ensure that, once the business re-opens, they will be able to continue to provide the quality products and services the company’s customers have come to expect.
The term “key employee” is not restricted to upper management or “titles.” For example, if a restaurant has been in business for 30 years and customers continue to patronize it because they value the service from long-serving waitstaff, business interruption insurance would pay for those employees’ salaries. It will not, however, pay for tips those employees are losing.
According to Peter Robinson, of Robinson and Son Insurance in Hudson Falls, restaurants must also accurately insure their income because there are penalties for not insuring to value.
“Those businesses should go through an accounting-style analysis, which is calculating net income, plus continuing expenses like key salaries, rent, insurances, taxes, etc.,” said Robinson.
Another industry that is not automatically eligible for business interruption insurance is the maritime industry. Robinson and Son Insurance specializes in maritime insurance. They cover vessels, terminals and boat builders, focusing on “brown water,” which refers to maritime activity and businesses that occurs along rivers and lakes.
He said in the marine area, business interruption is referred to as “loss of earnings,” and it is difficult to find an insurer who will write that type of policy. Unlike business interruption insurance, which usually begins to pay for lost income within 48 hours, the waiting period for loss of earnings is typically seven days.
“If a boat engine breaks down and new parts need to be ordered and paid for right away, the loss of earnings wouldn’t cover it for several days,” said Robinson.
For this reason, most marine businesses self-insure the risk. Robinson, who has clients in Lake George, used the tour boat industry as an example.
“If your business owns six boats and one breaks down, you would hope to pick up the slack with your other five boats. If you have one big boat, on the other hand, that’s a problem,” he said.
Another issue that is important for business owners is documentation.
When a business must close for repairs and renovations due to a disaster, they will need to produce gross receipts, employee records, tax documents and other expenses in order to begin receiving coverage in a timely fashion. An inability to produce documents that accurately reflect a business’ incoming revenue and outgoing expenses can result in inadequate coverage.
If a business has just recently opened and does not have several months or more of receipts, O’Brien said a good independent agent will look to other, similar businesses to make a fair assessment and arrive at a fair number.
“This is an important topic, and people need to know that they have the coverage and make sure that it is what they will need to get them through if something happens to their business. They need to talk with a good independent agent who will take the time to sit with them, learn about their business and custom design a policy to fit that particular business,” said O’Brien.