When disasters are in the rearview mirror, it's easy to convince yourself they won't happen again. Maybe that's a defense mechanism at work – no one likes to dwell on the worst-case scenario. And remembering the destruction and human loss disasters like Hurricane Katrina ($108 billion in damage) and Hurricane Sandy ($68 billion in damage) wrought is sobering.
Perhaps that explains why a recent survey sponsored by Nationwide found that 66 percent of small businesses don't have Business Interruption Insurance, according to a report by Insurance Journal. The report notes that in addition to forgoing this necessary coverage…
- 75 percent of small businesses don't have any type of disaster plan in place.
- 50 percent of respondents admit it would take them at least three months to recover from a disaster.
- 38 percent don't think a disaster plan is important.
- 37 percent thought climate change would make natural disasters less likely to impact their business.
These findings are disheartening for a number of reasons. Let's review.
1. Disasters don't discriminate.
They strike whether you live on the coast or in the middle of the country. The type of disaster may vary – coastal regions are more prone to hurricanes, whereas inland regions must contend with tornadoes – but sooner or later, one will hit. When that happens, you'll want disaster recovery tools in place.
And just so we're clear about climate change's impact on natural disasters, this NASA report states climate change increases the chance of catastrophes in the future.
2. Disaster planning now can save you a fortune later.
Recently, we discussed the fire that damaged the Chicago comedy theater Second City and how Business Interruption Insurance spared the club from standing still while repairs take place.
That may be what many businesses overlook when thinking about a disaster's aftermath: even with Commercial Property Insurance to help pay for repairs and replacements, rebuilding takes time. In the interim, your business is shut down and unable to generate income. So how do you pay for the expenses that don't stop even when your operations do?
Unless you have deep pockets, you probably can't afford to keep paying your employees' salaries, rent, loans, and taxes with just your savings. That's why Business Interruption Insurance is an essential part of a disaster recovery plan. It can provide coverage for:
- The profits you would have earned if the covered property event hadn't occurred.
- The normal operating expenses that accrue even while the business is temporarily closed.
- Relocation costs so your business can operate while its usual location is under repair.
In short, the coverage keeps ongoing operating expenses from coming out of your bank account when a covered property event (e.g., a fire, theft, or windstorm) temporarily shuts down your business.
3. Business Interruption Insurance is readily available.
You wouldn't know it based on the Nationwide survey's numbers, but Business Interruption Insurance is a readily available policy. In fact, it is often bundled with Property Insurance as part of your Business Owner's Policy, meaning you don't have to break the bank to get this coverage.
To qualify for a BOP, you must…
- Have a low risk profile (a clean claims history helps!).
- Run a small business.
- Not need more than 12 months of Business Interruption coverage.
That last point is especially relevant given that 50 percent of the survey's respondents said they thought it would take them about three months to recover from a disaster. Business Interruption Insurance typically covers 12 months of income and ongoing expenses during a temporary shutdown. You can find a policy that offers a longer term, but it may not be eligible for bundling.
To learn more about insurance's role in your business's disaster plan, read "What's Your Business Interruption Plan?"