Building operational resiliency with Business Interruption Insurance & continuity planning

There are several types of ways any business can be disrupted. Some examples include:

  • Natural events (e.g., major snowstorms, floods, severe weather, etc.)

  • Technology failures (e.g., telecommunications, computer virus, malicious software, etc.)

  • Electrical failure (local or building specific)

  • Fire affecting building or wide area

  • Data center failure or major application outage

  • Pandemics or epidemics

  • Human actions (e.g., terrorism, active threats, purposeful destruction of properties, etc.)

  • Essential supplier or service provider failures

Due to the number of challenges brought upon by Covid-19 to the Canadian business ecosystem, it is important now - more than ever - to understand the importance of planning for business disruptions, changing processes to adapt to fluid environments, having Business Interruption Insurance, and understanding how to integrate planning and insurance to play a key role in your ability (or client's ability) to continue business.

So how does a business plan to continue operating during disruptions?

Traditional business continuity planning consisted of planning for specific disruptive events, conducting risk assessments & business impact assessments, and creating communication plans to contact key stakeholders during an operational incident or crisis. Covid-19 amplified the need for businesses to change the way they plan due to the ongoing perpetual threat of the virus, its mutations, and the constant possibility of other threats being realized (e.g., a cyber-attack or purposeful damage to property).

How does a business change its processes to adapt to fluid environments?

A business needs to understand the needs of each of its stakeholders and the many possible scenarios that can disrupt its business. In creating scenario-driven disruptions (positive or negative disruptions) and using a perspective analysis based on the needs of stakeholders, you can begin to ideate ways to change processes.

As an example, before the pandemic, you facilitated conversations at your office with potential and existing clients about their insurance needs. Now, most of your customers are less inclined to visit your office, which could trigger several changes in your processes including:

  • Digitizing traditional documentation requirement processes where signatures may have been required.

  • Innovating the client experience by modifying your customer relationship management sales pipeline to include video conferencing, in-public meetings, and/or events.

  • Staying ahead of communication technology - your competitors are beginning to understand how future technology will play a role in how client meetings are conducted. This can include understanding the basics of how “Metaverse for business” can drastically change the experience for a client, and your bottom line.

Ideating ways to continue business during positive or negative disruptions using scenarios, while still considering the needs of your stakeholders, will be a key strategic mindset to have when it comes to doing business in a post-Covid-19 world.

How Business Interruption Insurance can play a key role in mitigating against losses.

Business Interruption insurance typically covers brick-and-mortar businesses during disruptions from floods, windstorms, earthquakes, or fires.

When thinking of offering Limited or Extended Indemnity?

The indemnity period is the period covered for loss of business. There are two basic forms of business interruption indemnities:

  • Limited (or earnings). This policy pays only until the damage is repaired or the property is replaced. As soon as your business resumes, the policy stops paying even if you haven’t regained your previous level of earnings. While a limited form policy is less costly than an extended policy, it may not provide adequate coverage for your business. Consider:

  • If you are forced out of business for several months, your competitors may snap up some of your customers. As a result, when your business starts up again, you may not be generating the same level of sales as you were before the shutdown.

There may be limits on the amount of time your business is covered and the amount your insurance will pay in any one month.

  • Extended (or profits). This form continues to pay until your business resumes its normal, pre-interruption level, subject to the maximum period of indemnity listed in your policy.

Additional Coverage

Consider if you must remain operational during the period affected by damage. You may incur extra expenses such as outsourcing work, temporary hydro/internet/telephone connections, advertising, rentals, or the cost of moving to a different premise if you need to carry on business at another location. Source – Insurance Bureau of Canada -

Decrease claims by encouraging planning

Even with business interruption insurance to cover financial losses, understanding a business's risks and creating methods of changing processes to continue operating is vital to reduce future claim amounts. Here are two examples:

  1. Joe owns a family franchise pizza store on the east side of town and only has business interruption insurance.

  2. Joe’s sister, Sarah, owns the other location on the west side of town. Sarah also has business interruption insurance. However, Sarah has created plans to:

  3. Understand risks with her local grocery suppliers to ensure quality ingredients can be purchased from an alternative supplier in case of challenges with her primary supplier,

  4. Created an email list of her regular customers and keeps in constant communication with them via newsletters. Sarah also created a few emergency communication templates to advise customers of delays or issues with delivery,

  5. Communicate the customer experience her customers will experience if they visit and dine-in based on current Covid-19 restrictions,

  6. Build great relationships with local government agencies such as police, fire, and the current elected officials.

If a major storm were to hit both east and west locations causing them to close:

  1. Joe’s business that only depended on business interruption insurance will have a higher claim amount because of the lack of existing controls to enable his business to continue operating.

  2. With Sarah’s diligence in business continuity planning, she was able to:

  3. Contact her suppliers to notify them of a temporary decreased need in products, which will reduce the claim amount because the suppliers will not expense her for the excess products delivered to a non-functioning facility.

  4. Contact her clients via email, notifying them of the closure and providing them with a 10% discount on the next order when they reopen.

  5. Some of her customers also found this a great initiative and began to praise Sarah’s pizza store on social media for the communication.

  6. Communicate that her pizza store will reopen after closure on social media while providing a gentle reminder of the protocols in place.

  7. Use her relationship with local fire officials to get insight into what was causing the disruption and possible times for the problem to get fixed.

Additional Resources & Next steps:

  • Need help in identifying how to create business disruption scenarios? We post our scenarios on Instagram weekly – Give Genesis.Resiliency a follow to learn how our methodology in perspective analysis works and identify what processes you will would need to change in order to continue business.

  • Need to build or improve an operational resiliency program for your business? Contact us.

  • Need to purchase business interruption insurance but unsure what provider to use? Contact us.

Martin Gierczak - Founder & CRO, Genesis Resiliency.