Disruption” can have several meanings, but it all feels very uncomfortable!

  • There can be positive impacts if you are the creator of disruptive innovation, like Uber or Airbnb.
  • Then there are disasters – both accidental (like fires, crashes, riots, etc.) and natural (earthquakes, floods, etc.).

Pain – These disasters can cause severe disruptions to business operations: loss of staff, production facilities, suppliers, customers, revenue, and profit. In addition to physical loss, you can expect hassles, distractions, wasted time, and unexpected expenses to add to the misery.

Relief – Insurance policies can offer relief with business interruption insurance (BII) – AKA, loss of profits or business income insurance – and several options. Unfortunately the relief can be short-lived because these are complex and often contentious, drawn-out claims.

Problems – Claims for BII are all about the future – hypothetical sales and revenue, normal and extra expenses, and lost profit. Further hurdles can arise from regulatory requirements, foreign suppliers, delays, and possible surge pricing if other businesses are involved in the same disaster. Claims worksheets, which are necessary to “prove” your loss, are complicated and require thorough documentation. Many times these are missing, incomplete, misunderstood, or open to interpretation.

Solution – The solution, like most things in life, involves advance planning. Knowing the pitfalls at claim time can provide hints about how to best prepare.

  • Your annual budgets and forecasts must have documentation. How did you come up with the revenue plan? What are your assumptions about your market, customers, suppliers, and expenses? Are they gut-feel or do you have some references you can document?
  • In today’s world of virtual (not vertical) integration, most businesses rely on a supply chain for goods or services. Ask about their assumption, and ask how they plan to manage their risks of a disaster or slow-down that could impact you.
  • As with any recovery plan you need a list of resources, contacts, and some employee training so that various tasks can be undertaken smoothly.
  • Finally, ask your CPA to assist with a hypothetical BII claim worksheet – get a sample from your broker and work through the definitions and numbers with a loss scenario so you better understand how the process works.

Have you dealt with a business interruption loss? What tips can you offer? Add your comments.

Plan – don’t panic! Email or call Charles (charles@risksmartsolutionis.com | 510-685-3883) with any questions or concerns about your unique situation. I can help – and there’s never a charge for brainstorming.