It's shocking to see how complacent companies can be about business interruption. Thankfully, the government is stepping in, says John Jackson
Some years ago I attended a two-day seminar on business interruption (BI) insurance. It was a sobering experience. First, I learned that many brokers do not offer BI because they don't understand it. Second, I realised that, like employers' liability (EL), it should be a legal requirement for all firms, public and private to have such cover in the event of disaster.Now the government, through its draft Civil Contingencies Bill, is determined to put the stamp of statutory responsibility on firms public and private to do what common sense dictates they should have been doing already. The London terrorist bombings were a classic example of how important BI is to firms. Almost overnight those firms affected were in temporary premises, phones and computers up and running. It was virtually business as usual. And the financial savings to those firms - and their insurers - was incalculable.It has always seemed to me an oddity that EL insurance to protect staff was a statutory obligation, yet you could lose your job because your firm had been burned out (or bombed out) and had no BI cover.When a firm is forced to close through disaster a number of side effects kick in immediately. People lose their jobs. Top people are quickly recruited by competitors, or soon find themselves another job.Suppliers dry up and customers are let down. Bills go unpaid and there is no cash to replenish stocks or pay wages. To leave a gap that size in a business or public service is negligence on the grand scale.
Poor reflectionBy the time the firm has recovered - weeks and maybe months away - their best people have long gone. As a tool of risk management BI is essential. It is a poor reflection on public and private organisations that the government has had to act. But big brownie points to the government for taking the initiative. This is one case where the 'nanny' state knows best. No doubt the argument will be put forward that BI is expensive and cannot be afforded. Some people say they cannot afford to go to the dentist - and their teeth fall out.What has to be looked at is the price of not having the cover. No doubt the public sector will pass the cost of the premium on to the ratepayer or taxpayer. But if essential public services are to continue, it is a price worth paying. The message to both the public and private sector is clear -adopt the message of the Boy Scouts and Be Prepared.