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It’s been an incredibly sad week for South Africa. The riots and looting have been devastating for local businesses, and the reality is that many are going to have a tough time bouncing back from the destruction. We live in hope that the dust will settle, but how will local business owners pick up the pieces?

One way to mitigate the effects of the damage is through Business Interruption Insurance. Here, we break down exactly what the heck it is, and why you might want to consider it moving forward.

READ MORE: Everything You Need To Know About Insurance (Because This Stuff Is Kinda Important)

Business Interruption (BI) explained…

Business interruption (BI) refers to any event that stops a business from trading or generating an income. Typical examples include fire, flood, explosion, theft and looting/vandalism, as in the case of the widespread destruction that’s been sweeping across KwaZulu-Natal and Gauteng.

Business Interruption Insurance

According to financial services provider Indwe Risk Services, business interruption insurance covers a business against the loss of revenue and helps it to get back on track in terms of paying overheads and expenses during the downtime.

Traditionally, if you had a factory and it burnt down, there was a policy to cover the losses. Today, there’s so much more that can go awry…

Factors that can cause your business to shut down

In today’s world, there are a bunch of factors that can cause your business to shut down. Think:

·         Cybercrime, political uprisings, sanctions.

·         Intellectual property – e.g. prototypes/concepts/competitive advantage.

·         Illness, injury, disability or death of a key person in the business – e.g. CEO, partner, etc.

READ MORE: 9 Key Documents You Need To File Somewhere Safe – Over And Above A Basic Will

Okay, so what exactly is BI insurance?

BI is a catastrophe type of risk, meaning that it doesn’t happen often, but if/when it does, both business owner and risk advisor need to ensure that they are prepared, and that the insurance policy will respond appropriately. Other catastrophe risks include damage to property and liabilities.

BI is impacted and linked to material damages to your business

Er, say that again? Okay – this means that your material damage cover needs to be accurate and suitable for the business. For example, if your factory burns down and you are only covered to rebuild a portion of it, your building insurance will affect your BI insurance since it doesn’t adequately cover the replacement/reinstatement requirements of the business.

Getting to grips with the seasonality of businesses

Losses during a certain time of year will not always affect every business the same. If a loss happens in peak season, you need to account for it. For example: A farmer’s storage facility burns down. He has no stock and needs to look at other options. Does he source stock elsewhere and repackage it with his own branding while he rebuilds? Does he supplement the loss by harvesting other crops? Or is he in a position to wait until the next harvest season? The costs thereof need to be considered as well as downtimes that may occur that will impact on rebuilding and restocking of goods.

READ MORE: 3 Really Good Questions To Ask A Financial Planner In Your First Meeting

BI affects anyone who is in business – even the small ones

BI doesn’t happen often, but if it is not managed correctly, it could affect the financial stability and ongoing viability of your business. Not only do you need to know and understand your risks – you also need to understand the risks to your clients and suppliers. Ask yourself: what do their business interruption plans look like, and what, from those plans, do you need to include and account for in your own BI plan?

Your BI plan should be revisited annually…

It should also be revised as your business changes. Always make sure you are adequately covered and have considered all your risks. Like what’s happening right now.

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