For more than 100 years, business interruption insurance coverage has been an important component of most commercial coverage insurance programs. This specialized form of first-party insurance is designed to cover lost income from the inability to continue normal business operations and functions due to a disaster.
Traditionally, there must be some type of physical damage to insured property at covered locations and by covered “perils” in order to trigger business interruption coverage. The covered perils that typically cause physical property damage include hurricanes, fires, explosions … well, you get the picture. Why is it important? Well, year-after-year business interruption is identified as the insurable risk most concerning to those executives who are responsible for managing risk within companies.
The New Peril: Non-Physical Damage Business Interruptions
Today, however, businesses are threatened and interrupted by many new types of disasters that do not involve physical damage to insured property. These disasters are called non-physical damage business interruptions (NDBIs) and can include cybersecurity attacks, product recalls, weather-related disruptions, regulatory risks and reputational damage. In the past, these types of disasters were essentially uninsurable; but now, a business can fill in those coverage gaps using an NDBI policy. This type of coverage can be especially useful to businesses with a high proportion of intangible assets and modern business models such as Airbnb and Uber.
For example, there has been a recent, rapid increase in the number of organizations purchasing “cyber insurance,” which is a relatively new and increasingly popular form of coverage that insures first- and third-party losses arising from damage to or a breach of sensitive data on a computer network. To date, many cyber policies are available in far less standardized forms compared to most property or equipment-breakdown policies.
Often, cyber policies cover data losses and system dysfunctionality caused by unauthorized intrusions into company networks. In some cases, coverage is available when a business loses income and incurs extra expenses after a computer system or network is disrupted or shut down by an insured cyber peril, such as a virus, data breach or denial-of-service attack. It’s easy to imagine how a company like Uber would be impacted if it could not book rides through its computer system.
Another example is regulatory risk, which was previously considered uninsurable in the food manufacturing sector particularly when international supply chains were concerned. NDBI coverage can be a perfect solution for companies who face potential shutdowns any time a supplier’s or owner’s site faces a regulatory shutdown and production is halted. Today, NDBI products can be designed specifically to provide coverage for those shutdowns.
Natural catastrophes also can cause major losses, particularly for airline companies — major events like volcanic eruptions can lead to airport and airspace closures. There may be no physical damage to any company assets, but there is a definite loss of revenue, heightened operational costs and potential reputational damage, as the airline cancels flights and leaves passengers stranded.
Protect Your Business From the Unexpected
Any company that’s focused on minimizing its uninsured and potentially unidentified, large risks should consider buying NDBI insurance coverage. It may be an extra business expense, but the peace of mind it provides is well worth the price.
When you experience a loss that causes a loss of income — be it from physical or non-physical perils — don’t forget to ask for help with preparing your claim. Loss accountants at Wipfli have over 30 years of experience assisting policyholders with filing comprehensive and reasonable business income claims — claims that can help you ensure your settlement is complete and fair.
To learn more about this type of coverage or explore more solutions to protect your business against major losses, contact me at firstname.lastname@example.org or 312.871.3375.