When Disaster Strikes
What to know about business insurance before you need it
When a major disaster - natural or otherwise - strikes, insurance often means the difference between surviving and succumbing. Here's what business owners need to know.
When a major disaster – natural or otherwise – strikes a company, insurance often means the difference between surviving and succumbing. Even less-than-catastrophic incidents can have a serious impact on profitability. But small business owners often don’t realize until it’s too late that they don’t have enough or appropriate insurance.
Experience is the best teacher, and disaster survivors often earn advanced degrees during their recovery. Here are some critical lessons:
Read the policy. When you read the policy, you might find you have more coverage in some areas than you realized, and no coverage on things you thought were protected.
Pay attention to exclusions. Don’t assume your policy covers everything. For example, ordinary commercial policies exclude floods (flood insurance is available through the National Flood Insurance Program), earthquakes, damages resulting from government action, war, and acts of God. Read the exclusions carefully, be sure you understand what they mean, and discuss options for filling the gaps with your agent.
Conduct an annual coverage review. Sit down with your agent once a year to review your coverage, how your business has changed, and what your current risks and liabilities are.
Expect the unexpected. You never know what might happen, so be sure your insurance covers you for the unforeseen as well as anticipated risks.
Check out the insurer. Check out the insurance company to make sure it’s solvent and has the financial stability to pay on a large-scale disaster. Discuss the company with your agent, and check with an independent rating agency such as A.M. Best or Standard & Poor’s. Also contact your state insurance regulatory agency to find out if any complaints are on file.
Notify your carrier of major purchases. When you acquire new equipment, get it listed on your policy immediately.
Be prepared to negotiate. Don’t accept a settlement offer if you don’t think it’s fair and be ready to document why you think you are entitled to more. If you’re not comfortable with the adjuster assigned to your case, contact your agent or insurer and ask for a different one–they’re not all the same.
Finally, even when you’ve got insurance to repair and replace your property, you might suffer a devastating loss of income if you are unable to operate for any length of time. If a covered peril puts you out of business temporarily, business interruption insurance will replace lost income, pay ongoing expenses (such as rent, loan payments, utilities, payroll, and so on) that do not stop just because your business has, and even pay the costs involved in getting you up and running in a temporary facility.
Some business interruption policies offer an option that will protect you from financial losses due to the necessary suspension of your operations as a result of a problem at a “dependent property,” which is defined as property not owned, operated or controlled by you but on which you are dependent for continuation of your normal business operation. So if a major freight company went on strike and you couldn’t maintain full operations because of shipping and receiving problems, a dependent property endorsement would cover your losses.
When it comes to insurance in general, the time to think about it is when you’re not having a problem. Shop around for a good agent who understands your industry and will function as your advocate, help you do an objective risk assessment and negotiate strongly on your behalf with insurers.
