The Chinese port of Tianjin suffered a series of deadly explosions last week. According to BBC News, the explosions originated at one of the port's warehouses that stored hazardous and flammable chemicals. In a city of more than 15 million people, the chemical blasts are particularly alarming. Business Insider reports that…
- The blasts have claimed 104 lives, including 21 firefighters.
- 720 people were injured.
BBC News states the devastation doesn't end there. The blast waves decimated the port's commerce, too. Plenty of goods were stored at or around the port, such as the logistics park brimming with several thousand cars, all lost to the explosions. The report notes Hyundai had around 4,000 cars on the site, but it hasn't assessed the damage yet.
For business owners in the affected area, picking up the pieces after this tragedy can seem insurmountable. Where do they begin? How do they grapple with the expense of the somber aftermath? Let's take a look at how Business Interruption Insurance may lend a helping hand in times of crisis.
Business Interruption Insurance as a Way Forward
Business Interruption Insurance is an endorsement that can be added to a standalone Commercial Property Insurance policy or bundled with a Business Owner's Policy. It usually kicks in when a covered Property Insurance claim shuts down a business for more than 72 hours. Most policies can cover up to 12 months of interruption costs while the business rebuilds and recovers from the triggering event.
In the context of the Tianjin explosions, Business Interruption Insurance's benefits are immense. For example, say a manufacturer's plant was destroyed in the blasts. Fire damage is typically a covered property event, so Business Interruption coverage may help pay for the manufacturer's…
- Lost income (i.e., the profits that would have been earned if the explosion didn't happen).
- Ongoing expenses (i.e., the costs that must be paid even when the plant is temporarily shut down, such as salaries, taxes, and loan payments).
- Relocation expenses (i.e., the cost of moving the business to a temporary location).
The policy can give the manufacturer the means to stay afloat while their Property Insurance policy helps pay for the cost of repairing and replacing the damaged property.
What about the businesses that depend on the manufacturer's products? They may not have suffered any direct damage, but the interruption in the supply chain may force their businesses to temporarily shut down, too.
For those parties, Contingent Business Interruption Insurance is their best bet. If they have this rider in place before a covered property event shuts down a supplier, it can help them pay for ongoing expenses while they search for a new supply source.
That's worth keeping in mind if your business depends on one supplier's raw materials or goods to operate. That supplier could be across the country or overseas, but if a sudden disaster brings it to a grinding halt, you may be miles or oceans away and still feel the sting.
Business Interruptions Can and Will Happen, So Make a Plan
One thing small-business owners can learn from this horrific event is this: interruptions don't give any advance warning. Start thinking about what your business would do when faced with a sudden and long interruption, and make a plan that can help you survive. That may mean…
- Sourcing backup suppliers.
- Backing up digital and physical data.
- Compiling contact information for clients, insurance providers, and employees.
- Investing in Business Interruption Insurance.
That last point is especially important for small-business owners. A National Association of Insurance Commissioners study [PDF] found only 35 percent of small businesses carry Business Interruption Insurance. In other words, when a game-changing disaster hits, 65 percent of small businesses have no income protection or way to keep their employees during a shutdown.
Make sure your business isn't one of them. For more information on disaster planning, read "What's Your Business Interruption Plan?"