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Digital EditionMitigating Financial Disaster with Business Interruption Insurance
Paul Sullivan joined Insurance Office of America in May 2009 and currently serves as West Division president. He was appointed to the IOA board of directors in 2023, and previously served as Northwest regional president. Paul has been essential in the rapid growth of IOA’s Western region, increasing revenue, producer staff and locations. He is responsible for partner relations, sales development and broker recruitment, providing proactive risk and insurance services for a diverse group of clients in the U.S. and globally. Paul earned his Bachelor of Arts degree from the University of California, Berkeley, and a Master of Business Administration degree from San Francisco State University.
Over the past few years, losses from business interruption (BI) have been triggered by civil unrest, technological failures, natural disasters and human factors. The collapse of the Francis Scott Key Bridge in Baltimore and the CrowdStrike-Microsoft outages are two recent examples where the occurrence of damage and downtime to infrastructure triggered significant financial losses for scores of businesses.
While many business owners carry some form of business interruption coverage, they may not know if they have the right insurance coverage and limits to effectively mitigate BI risk from these types of events. In today’s complex economic landscape, it is crucial to identify and mitigate the risk of unexpected disruption events to ensure the financial continuity of a business.
The Importance of Business Interruption Insurance
If vandalism, storm damage, a cyberattack or other event disrupts a company’s operations, BI insurance can provide financial protection by helping to cover ongoing operating expenses, extra expenses and lost profits.
Today, interruption is a top concern for enterprises, as losses stemming from disrupting events can put an organization’s survival at risk. In fact, according to law firm Reed Smith, “business interruption ranked among the top concerns for companies globally in 2023. Extreme weather events, cyberattacks, fires and explosions, political violence and COVID-19 will continue to drive BI claims in the coming years.”
Many business owners assume that BI is covered under their business owner’s policy (BOP) or commercial property policy. They are not always aware of what may or may not trigger coverage, or that it may be an optional coverage that needs to be customized under the BOP or, more likely, a commercial property insurance policy.
Further, many business owners are dependent upon the uptime of key suppliers, manufacturers or distributors. If those vendors have a loss at their own premises, it could cripple a business’s supply chain, triggering a type of business interruption event known as contingent business interruption, or dependent premises business interruption, which a business also can insure against.
Recent Events Underscore the Importance of BI Insurance
If recent events have taught us anything, it’s the importance of including BI insurance in the comprehensive risk management strategies of businesses both large and small.
Most recently, many were impacted by a major Microsoft outage linked to CrowdStrike, a cybersecurity company. CrowdStrike released a problematic software update that impacted IT systems globally. Airlines, banks, TV stations, health care organizations and more faced widespread outages. According to recent aviation data, Delta Airlines canceled more than 4,600 flights in just three days — more than any other airline. This continues to have a profound impact on Delta’s business.
BI also occurred after the collapse of the Francis Scott Key Bridge in Baltimore. Many businesses depending on the port of Baltimore had to shut down as result of blocked traffic access, transportation and logistics delays, and even unsafe travel conditions. Reuters recently reported that, according to a Morningstar DBRS analyst, “depending on the length of the blockage and the nature of the business interruption coverage for the Port of Baltimore, insured losses could total between $2 billion and $4 billion.”
Wrapping Up
As business interruption risks grow, agents would be wise to help their clients understand the importance of making BI insurance part of their comprehensive risk management strategies.
To protect the financial viability of their companies, it is critical for business owners and their agents to identify and understand operational exposures to BI risk and for agents to educate these businesses on policy terms — including coverage triggers, exclusions, limits and waiting periods. This type of collaboration will position agents and their insureds to sustain the many challenges that are sure to come as the nature and frequency of disrupting events continues to impact our world economy.
