In the aftermath of one the most intense catastrophes to strike the U.S. in the last century, business interruption insurance may prove to be of great assistance to the hundreds of businesses forced to close due to Hurricane Katrina, according to the Property Casualty Insurers Association of America (PCI).
“The disruption of business operations due to a hurricane can have a significant and devastating impact on a region,” said Donald Griffin, vice president, personal lines for PCI. “While most businesses have insurance to cover their buildings and equipment, many businesses hit by Hurricane Katrina may not endure because they have to shut down and, as a result, they have no income for days, weeks or even months. The businesses that will weather a disaster are the ones that have business interruption insurance.”
Assisting businesses in reestablishing standard operations is one of the most valuable ways insurers can help a business and a community get back on their feet following the devastation associated with a catastrophe.
“While the first steps businesses should take involve securing the safety of the business operations and property, it is also important to consult with your insurance agent to make key decisions regarding damage assessments and clean up work,” said Griffin. “For businesses forced to close due to a hurricane, business interruption insurance may help replace lost income.”
Here are a few basic facts on business interruption insurance policies:
* Business interruption insurance compensates a business owner for lost income if the company has to vacate the premises due to disaster-related damage that is covered under the property insurance policy, such as a fire. It also compensates the owner for the profits they would have earned had the disaster not occurred.
* The policy may also cover operating expenses, like electricity and phone, as well as employee salaries.
* Business interruption coverage is typically not sold separately. It is added to a property insurance policy or included in a package policy.
* Time frames for coverage vary from a month or two to a year or more.
* Options can be purchased in addition to a basic policy and include co-insurance (like a deductible), payroll coverage for employees or officers and a specific time period for anticipated return to normal operations. Other options can include income that is lost from renting space to another business or extra contingency expenses to cover higher prices paid to an alternate supplier when the original supplier is shut down and cannot provide crucial items.
* Another option that may be valuable in this situation is one that would cover loss due to an off-site power interruption, usually after a certain time period (e.g., 12 hours).
Business owners affected by a hurricane should contact their insurer or insurance agent as soon as possible to verify what their policy covers and to help them begin putting together the financial and other records needed to receive payment. The following steps may be helpful to those affected business owners:
* Inspect your property as soon as possible and take steps to protect it from further damage.
* Document damage to inventory, or the loss of inventory, with receipts or other information. This will help in the reimbursement process.
* Obtain copies of a recent operating statement or income tax return to indicate income that is lost because of a storm. Financial reports prepared by the company’s independent accountants may provide the most complete financial information for those businesses that did not store copies of their records off-site. Other sources of some needed information could be tax advisors or a bank where the business obtained a loan, as well as records kept by their customers and vendors, although that information may be scattered and incomplete. The more records a business can provide, the quicker their claims can be settled.
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