At First Recovery we see first-hand the effect that disaster can have on businesses. Whilst we deal with the practical side – getting businesses back up and running as quickly as possible in temporary offices with working IT equipment – we also see the wider impact that disaster has.

If disaster were to strike your business, the first things you would rightly prioritise are your people, your premises and getting back online so that you can communicate with your customers and clients and keep them informed. But once this initial period is over, have you given thought to the longer-term recovery and getting your business back on track?

In thinking about the immediate impact of a disaster event such as a flood or fire, you may not think about factors such as: 

• Planning applications slowing down the rebuild process
• Supply chain issues
• Labour shortages
• Rising costs of machinery
• Delays in delivery of key equipment or machinery
• The real timescales involved in getting back to pre-loss levels.

All of these types of factors can cause real delay in getting back up and running to the levels you were at pre disaster. In fact, it often takes a business much longer to recover from a disaster event than would be expected. In our experience 2 years isn’t an uncommon timeframe for this.

And policies such as building or contents insurance won’t cover this gap in trading or loss of income, they will provide only for the physical assets that are lost.

This is where business interruption insurance comes in. It is an insurance product designed to cover loss of income that a business may suffer if they have to cease trading for a period of time as a result of suffering a disaster event.

Why is Business interruption insurance overlooked?

One source suggests as many as 40% of SMEs lack adequate business interruption insurance. So why might this be the case?

• Lack of understanding of the cover – really do your research and work with a broker to understand your insurance needs 
• Money saving – insurance can be expensive and if a business is struggling it may be area to cut back on. But it could be a mistake to cut costs in this way if you are later faced with a disaster event
• Not a legal requirement–  Business interruption insurance isn’t a legal requirement so this may impact some buyer decisions
• Not taking out enough cover – many businesses may have business interruption insurance in place but unfortunately not have sufficient cover for their needs. Calculating the levels of business interruption insurance that you require is complex and requires you to consider a range of factors – something we explored in a recent blog which you can read here.

Ultimately business interruption insurance will cost your business money. But it could well prove to be the difference between your business surviving a disaster event or having to close as a result. For this reason, it is vital not to overlook it and to do your own research or work closely with a broker in deciding whether the cover is necessary for your business.