Disasters and disruptions can devastate businesses and upend entire supply chains, leading to devastating financial consequences. Although insurance can't completely insulate an organization, there are important aspects of property and business interruption coverage that can help protect your company and larger network. Following are key insurance considerations business leaders should keep in mind.
Assemble a recovery team of trusted advisors, including legal counsel, an accountant, a risk manager, a chief financial officer and a public adjuster. When operations stop, every hour that goes by can cost tens of thousands of dollars. Have a team that can quickly determine the actual or potential extent of the damage, submit the business insurance claim, and negotiate with your insurance carrier.
Use your business interruption insurance to continue fulfilling orders. When your manufacturing process is disrupted, finding another way to fulfill client orders becomes your top priority. If operations are not restarted quickly enough, your current clients might go elsewhere. Leverage your business interruption insurance to move operations to a temporary location; secure funding for extra expenses, such as renting equipment; or even purchase products from a competitor to fulfill orders. Your insurance might also cover additional costs associated with advertising and marketing to assure customers you are doing everything possible to meet their needs despite the disaster.
Know how to calculate lost income. One of the most important factors to consider is how much money your company stands to lose when disaster strikes. Recouping this loss also happens to be one of the most difficult issues to tackle after the disaster happens. Your business interruption insurance can help pay for extra expenses and replace lost income, but the claims are subjective, and it’s not always easy to obtain a fair settlement. An expert public adjuster can guide you through the complexities of your claim and make sure each facet of lost revenue and extra expenses is accounted for.
Avoid co-insurance penalties. Some insurance policies include coi-nsurance clauses, which could prevent your company from receiving the full settlement it is entitled to for property damage. Co-insurance requires that the insured carry an amount of insurance equaling a specified percentage of the business’ value. If the policyholder does not, they become a co-insurer or joint insurer responsible for the percentage that is not covered. If you are unaware of the implications of c-insurance until your operations are disrupted, your company’s finances may be devastated. Arguably, this clause is one of the most impactful considerations of an insurance claim, so check your insurance policy twice per year.
Assess all inventory damage. The multiple categories of inventory involved in the production process — from raw materials to work-in-process to finished goods and shipments — are not always clearly defined. Determining the valuation of inventory as it progresses through the different stages of the supply chain must be accomplished before you can assess how it is covered by your insurance policy. An insurance expert can assist with identifying the different stages of your goods and negotiate fair compensation. Determining the different valuations of inventory within your supply chain can also save time and money.
Account for the unseen. Water and smoke damage are not always visible to the naked eye, but they can cause myriad issues down the line if unmitigated. It often takes trained experts, such as certified industrial hygienists, to thoroughly evaluate a property through in-person walkthroughs, evidence testing, and photo and video documentation. Additional perspectives about the presence and severity of both visible and unseen damage can strengthen your position in negotiating a fair compensation with your insurance carrier.
Turn a disaster into an opportunity for growth. It’s common for a business to have to relocate when its original location is temporarily unusable. While the original building is undergoing repairs, your business insurance may reimburse you for the rent for this temporary location. In addition, payments during a lease-purchasing agreement could count as an extra expense covered by your insurance policy. This would allow you to eventually purchase the building and expand locations once the original building is repaired and ready to resume operations.
