According to an article by Eames Consulting in 2017, research from QBE insurance indicated that 26% of businesses in Hong Kong suffered lost income due to a business interruption. And if you thought that things were better by now, think again. The uncertain economic situation, global supply chain disruption, rising inflation, and other macro factors continue to impact businesses in Hong Kong and their bottom line.
With this in mind, securing the right business interruption insurance is crucial for sufficient protection against various potential corporate perils. But, what exactly is business interruption insurance? This Kwiksure article has the answer to this question and more!
Business interruption risks in Hong Kong
According to the Allianz Risk Barometer 2022, business interruption ranks as the second most concerning risk, after cyber risk, and results in a loss of income that could impair a company’s revenue stream and thus a shortfall in covering the ongoing costs of doing business.
What are the causes of business interruption?
Causes of business interruption include anything from fire and natural disasters to incidents like cybercrime, supplier failure, global supply chain interruption, and global pandemics.
Prevention against revenue loss with business interruption insurance
Despite all the risks that exist out there, what’s surprising is that many businesses in Hong Kong are taking action to find business interruption insurance only after they have experienced a disruption.
By waiting until after a disruptive event has occurred, many businesses are missing out on the compensation they could have received for the initial event, among other inconveniences. As such, having the right business interruption policy in place will ensure that your business is truly protected from various unexpected disasters that could occur.
What exactly is business interruption insurance?
Business interruption insurance is typically available as an additional benefit to your business insurance policy, and covers lost income and ongoing costs (e.g. various bills and employee salaries). It may also cover the extra expenses to mitigate losses caused by external factors – factors not under your control – such as interruptions caused by natural disasters, fire, machinery breakdown, supplier failure, etc.
When a business interruption event occurs, this type of insurance provides a range of benefits, from coverage for the cost of repairing your property to compensation for lost revenue due to the disruption, thus ensuring that you can stay in business and get back on your feet sooner.
How to calculate business income for business interruption insurance
In brief, to calculate business income, follow these steps:
- Calculate your total revenue from business activities.
- Subtract your business’s expenses (including operating costs) from your total revenue, which reveals your business’s earnings before tax.
- Deduct taxes from this amount to find your business’s net income. Your net income is equivalent to your business income.
Note: An insurance specialist at Kwiksure can help you calculate the level of coverage needed and indicate the estimated cost of a business interruption insurance plan for your organization. To begin, get an insurance review here.
3 things to be aware of before you buy business interruption insurance
It’s important to note here that each policy will be unique to every business, and there are also a number of things that you will need to be aware of, including:
1. Knowing the different coverage options available
Some business interruption insurance plans will cover more than others, so you must know precisely what’s covered. For instance, some plans will only cover the lost income and ongoing costs caused by damage to property.
At the same time, other plans will also cover the damage to the premises of a customer or a supplier (e.g. a fire at a supplier’s factory). Some plans may also cover non-physical damage, e.g., losses incurred due to cyber incidents.
2. Knowing exactly what interruptions are covered
As this policy is often sold as an add-on to your existing business insurance plan, they will tend to only provide coverage based on what your existing plan covers. For instance, if you have not opted for fire damage cover in your primary plan, your business interruption insurance will likely not cover it.
3. Knowing how claims are paid
One thing to be aware of here is that some insurers may not include the first few days immediately after a disaster/incident in the payout consideration, so it’s a good idea to ensure that you have funds on hand that can cover up to a week’s worth of operating costs.