As businesses bounce back, what about business resilience?
As businesses, we all know that insurance can play an important role in protecting our financial security. Public liability and professional indemnity insurance are core protections but what about protecting our business resilience?
Insurance as a tool for resilience.
The Covid 19 crisis has spotlighted Business Interruption Insurance (“BI”) cover. It should pay compensation when a factory, workshop or premises are damaged so that the business cannot function. Or, if the business takes other premises with higher costs, then the “increased cost of work” can also be recovered. This protection can even be extended to key suppliers’ premises where there is a clear link to your business’s fortunes. When BI works it is a valuable tool.
Unfortunately, BI is complex and so the policy wording and exclusions are key. Insurers have special exclusions for things like pandemics or national, as opposed to local, close downs. The Financial Conduct Authority has taken the industry to court to get a ruling on policy wordings as many insurers may not pay out for COVID. Also, remember BI pay outs are calculated after a set period (usually 12 or 24 month) has passed, this of course doesn’t help in the near term to meet your costs..
Personal Income Protection Insurance may be useful in ‘normal’ circumstances if you stop earning and need financial support. An illness or injury is the trigger – not getting redundant or lost business. It covers lost personal earnings (sometimes up to 70% of income).
If you are employed, the evidence of earnings is clear and getting cover is usually straightforward. For self-employed and business owners, a discussion with an insurer will determine what level of cover, length of contract and pay-out delay (which can reduce the premiums) is needed.
Income protection is worth exploring for household resilience. It can help protect your standard of living at a critical time.
Many business policies offer Legal Expenses cover as part of the package. The costs of legal action often put off small businesses recovering money from others. The cover provides for a lawyer (acting for the insurer) to look at the issue and decide if you have a good case. If so, then they will support you to act; though the terms of the cover usually mean that the insurers have a big say in how you proceed.
An example might be a supplier failure – they go bust and you have paid in advance, they refuse or fail to fulfil your contract or, the supplier provides a defective product that you intended to sell.
A business we know found that their fulfilment centre broke their contract because of capacity issues, and this almost caused the business to collapse. With legal expense cover in place, the insurer’s lawyers agreed there was a better than even chance to win and covered all the fees to sue the supplier – RESULT!
For retail businesses you need Product liability cover in addition to Public liability. If you sell a defective product it could spell disaster even if through no fault of your own. Most victims will go after the party responsible and the supply chain – but you might be first in line. Ideally, your supplier’s contracts should provide your business a recovery right (sometimes called “right of recourse”). Insurers often regard this ‘right of recovery’ as a ‘condition precedent’ to your cover and will not pay a claim without it.
Beware a gotcha! Today’s top tip.
Therefore, in your insurance policy you may come across the phrase “Condition Precedent” (CP) which is important. Why? A CP is stopper on a claim under the policy. Basically, if you breach a CP “the insurers are simply not liable to pay your claim, as you have failed to establish the insurers’ liability”.
In the past, this legitimate but draconian avoidance has led to legislators narrowing the application of CPs. Carefully read your policy and, in particular, the schedule to look for these exclusions and how they might impact your business partnerships both with suppliers and customers.
Oh, an additional point – A CP doesn’t need to have the words “conditions precedent” in its text. Check your policy and schedule for these special conditions. If in doubt, ask your insurer or broker.
You can learn more about saving on your insurance costs in our blog.
We’ll look at security tips in the next blog,
‘where did I put all that data?’