Business owner? You need business interruption cover

When it comes to running a business, all business owners know they need insurance to cover unexpected losses, theft or damage to their property or equipment.

In their personal capacity, business owners take out dread disease cover to protect them should they develop a critical illness and are unable to work, or life insurance should they unexpectedly pass away.

But what about the business itself - the act of producing goods, or rendering a service, or selling items. What happens when those processes are impacted upon, and the business's income and cash flow come to a grinding halt as a result of unforeseen circumstances?

For that, a business needs business interruption (BI) cover. This commercial insurance product protects your business for earnings that are lost as a result of a specified event, whether that be theft, damage to property or a catastrophic event. BI cover enables a business to continue paying its monthly expenses, from staff salaries to monthly rent, in the absence of an income.

BI insurance attempts to prevent the losses that the business is experiencing from having a permanent impact on its financial position, and enable it to return to the financial state it was in before the incident occurred more easily.

It usually covers the loss of profits, additional expenses incurred as a result of the incident in order to keep the business running, and the business's day-to-day fixed expenses, which it is unable to cover due to the incident.

Further to this, BI cover can include components that are external to the business but essential for continued operations, such as the loss of access to water, power or connectivity services.

Interestingly, following the Covid-19 pandemic of 2020/1, business interruption cover no longer includes epidemics or pandemics. Most insurers implemented exclusion clauses for communicable diseases and epidemics into non-life policies, including BI, following the SARS outbreak in 2003. Those that didn't quickly followed suit after Covid.

As such, the majority of BI cover available in SA today only provides compensation where a business's physical assets have been damaged, which prevent it from earning an income.

Business interruption cover is usually taken out as an add-on product to the business's primary insurance cover, providing an extra layer of protection, which is essential in helping small businesses weather unexpected storms.

To claim from a BI policy, the financial or operational loss must be directly connected to the business operations or business premises, and cannot be connected to items that are covered under other insurance policies (i.e. catastrophe cover or business contents cover).

It's important to sit with your insurer and check that your business is fully covered under all necessary policies to ensure there are no gaps in your cover. Factors like the cost of your assets, your financial needs, and the liabilities and risks your business face must all be taken into account.

Being unable to operate your company and then discovering you're not adequately covered for the loss is too late, and can spell disaster for the future of your business.