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.). We’ll focus on these!

Pain – Disasters can cause severe disruptions to business operations: like 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) – sometimes called loss of profits or business income insurance. Unfortunately the relief can be less than expected, because these are complex and often contentious, drawn-out claims.

Problems – Claims for BII are all about the future – what did Yogi say? What will be your 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 possible pitfalls that can arise 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? Hint: you’ll need these!
  • In today’s world of virtual (not vertical) integration, most businesses rely on a supply chain for goods or services. Ask about their assumptions, 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 and carried out smoothly.
  • Finally, ask your CPA, and an insurance professional, to assist with a hypothetical BII claim worksheet. I suggest you 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, and what documentation to carefully archive.

Have you dealt with a business interruption loss? What tips can you offer? Add comments to the blog here.

If you have questions or more complex circumstances, don’t hesitate to give me a call – charles@risksmartsolutions.com | 510-685-3883. There’s never a charge for brainstorming!