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Is your business prepared for interruptions?

Pacific Prime China looks at business interruption insurance and how to find the best for your business.

Posted on Aug 28, 2015 by Rob McBroom

The recent explosions in both Tianjin and Shandong were nothing short of horrific, and will no doubt cause an impact that will be felt by those communities for years to come. While tragic, these explosions do bring to light a number of questions that any business owner, or manager, in China should be asking. The most important being: How can I protect my business if it is interrupted by external factors e.g., natural or manmade disasters?

Ask any business consultant this question and, without a doubt, their first piece of advice for you would be to develop, implement, and maintain business continuity practices. These plans outline steps that need to be taken to keep operations running during an emergency.

Most business continuity plans focus on keeping operations running, or backup operations should something happen to your business. There is a good chance that some businesses in the area surrounding the explosion zones had some form of continuity in place, but, according to the BBC, the explosion area is now sealed, meaning that companies likely won't be able to resume operations anytime soon. The best, most thorough continuity plans likely won't cover disasters like this happening, so affected businesses likely will be facing tough times ahead. While this is a rare scenario, anything can happen in China and you need to be fully prepared. Business continuity plans are essential, but the recent explosions in China highlight a crucial element of these plans that businesses and experts may overlook, and that is business interruption insurance   

What exactly is business interruption insurance?

Business interruption insurance is a form of insurance sold by many insurance companies as an add-on to property or casualty insurance that is meant to cover business income that is lost due to external factors - factors not under your control - such as fire, flood, explosions, and other types of disaster.

In other words, if you are forced to stop operations due to an external force like, say, the recent explosions, you can submit a claim to recover lost income that would have been made had you been operational.

While Pacific Prime fully believes that business interruption insurance is essential for businesses operating in China, we also recognize that it can be complex. To help, we have come up with a list of important things you should know before securing this insurance for your business.  

Five things you should know about business interruption insurance before you buy

1. Know how claims are paid

As with any insurance plan, it is important to know how any claims you submit are going to be paid out. Generally speaking, with this type of insurance, the provider will look at recent income history and expenses, and then determine an appropriate payout. One thing to be aware of is that some insurers will not include the first few days immediately after a disaster in the payout consideration, therefore it would be a good idea to always keep a slush fund on hand that can cover up to a week's worth of operating costs.

Beyond that, the insurance provider may ask to see recent financial records when you submit your claim, so as to make an accurate judgment as possible, so it would be a good idea to keep careful records that are updated on a regular basis. Because this type of insurance covers disasters that impact your business, it is strongly recommended that you have a digital version of your financial records that is kept off-site (not within your business/building). This will allow you to quickly forward records to your provider.   

2. Know exactly what disasters/interruptions are covered

The way most business interruption insurance plans work is that they are sold as an add-on to your existing business insurance plan. Because of this, they will usually only provide coverage based on what your existing business insurance plan covers. For example, if you have not selected coverage for fire damage in your main plan, it is highly likely that interruption insurance won't cover this either.

3. Know whether you want to cover all employee wages or not

This may sound a little odd, but when selecting a plan you will need to also establish not only whether you will be paying employees after a disaster but also who will be paid. For example some employees may not have necessary roles that are essential to a business's recovery efforts. If they are not needed, it is not unreasonable to put them on short-term leave.

The key here is you need to know who will be kept on, and their wages. Also be sure to know the employment laws in your area - some regions of China do have different rules regarding pay and work - so it would be a good idea to stay abreast of the rules.

4. Know the additional coverage options available

Like many other types of insurance, there are always different coverage options available that may be worth looking into. For example, if you rely heavily on another company's service e.g., a cloud service company that hosts all of your business's systems, and this provider goes down you will be unable to operate. Some interruption insurance won't actually cover this with basic plans, as the disaster does not directly affect your business, instead this is available through a separate coverage option often referred to as contingent business insurance.

The idea here is to carefully look at the options available and consider whether your business can benefit from the extra coverage.     

5. Know the different options available for your business

Finally, there is more than one provider of this type of insurance in China, and there are also different levels of cover for you to consider. This can make finding and selecting a plan a bit of a chore. What the experts at Pacific Prime China recommend is to work with us, as we can help you find the best coverage that meets both the needs and budget of your business. Contact us today to see how we can help.

 

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