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You've probably prepared for all the standard disasters than can strike your own firm - fire, flood, theft of data. But in today's complex global business community, no company is an island. Interdependencies with suppliers and customers have increased, putting business interruption (BI) insurance high on the insurance agenda. You may escape a direct disaster in your own company, but disasters at your suppliers or distributors can quickly lead to a disaster of your own. The trend for outsourcing has certainly provided growth opportunities and business efficiencies, but it presents fresh dangers to companies managing their exposure to disasters.

Insurers and brokers have a long way to go to convince smaller companies in particular of the value of BI, and to ensure they get the right levels of cover to suit their needs.

Even where BI cover is purchased, there is no guarantee that the policy will provide adequate cover. Problems emerge where indemnity periods are not set correctly, and this is compounded if policy extensions are overlooked, in spite of the rising reliance on the supply chain and large customers.

In the past year or so the insurance market has been hardening, with reduced capacity in some areas. As insurers focus on underwriting for profit rather than relying on investment income, the effects are being felt on the front line, making it tougher to renew or buy insurance.

"There is a capacity issue in general in the market," comments John McGee, managing director of Miller Farrell, part of the Miller Fisher Group. "The property and to some extent liability markets have been hardening over the past year or so. Lots of insurers aren't renewing, even for large companies, forcing them to seek alternative markets, such as Lloyd's."

The BI market in Ireland is relatively mature, and there are close parallels with the UK in the types and levels of cover. It is a resilient market, proactive in designing products to suit the particulars of the Irish trading environment. Large brokers often have their own in-house BI expert who understands the important areas of cover, including indemnity periods and extensions.

John Eves, partner of Thornton & Partners, agrees that the market is sophisticated at the top end. "There is a high degree of awareness of business interruption insurance in the Irish market. Big brokers are armed with in-house expertise, and as a result, large corporates generally have the right levels of coverage."

But it is at the smaller end of the market that more problems are encountered, because smaller companies don't have access to expert advice, and don't always view BI as a necessary cover. Because of this, small to medium size enterprises (SMEs) represent a growth opportunity for the BI market.

"There are a lot of issues for SMEs, who buy packaged policies from agents who don't have their own BI expert," comments McGee. "There is a general lack of understanding of policy cover. Underinsurance is a problem, and often the standard indemnity period isn't changed." McGee warns that in times of economic uncertainty, SMEs will be the ones to pull back on BI first. "If there is a recession, SMEs will cut spending on BI, which they see as a discretionary item, an expense to the business. But they will feel the benefit of the cover if there is a disaster."

Eves agrees there is a danger with package BI insurance for SMEs. "These policies are easier to understand, so they are easier for SMEs. The problem is that the insurance company spoon-feeds the smaller broker with the policy, who doesn't check the indemnity limits and amount of cover. In the interest of expediency they present the policy to the client."

Martin Barry, senior global underwriter with Generali Insurance, argues that BI is increasingly necessary because of the increasing dependence on outsourced suppliers and large customers. "If a company has a key reliance on a supplier or customer, a disaster at these external businesses could impact heavily on them."

Barry agrees that large corporates generally have the correct advice in terms of their BI requirements. "However mono-nationals and SMEs don't have the same level of advice and may not identify areas where large losses may occur. This is where business continuity planning can help, to identify the risks."

It is estimated that BI claims cost three times as much for a company with no business continuity plan, yet few companies place continuity planning alongside BI insurance, even though they provide complementary protection against disasters.

After a disaster, insurance will pay out for property, consequential loss and legal liability, but won't take qualitative or immeasurable factors into account. A business continuity plan bridges the gap between a disaster occurring and a BI claim being paid, often covering the areas that insurance leaves unprotected.

"Most people pay lip service to contingency planning, but the focus of underwriting has changed," comments McGee. "Insurers are now underwriting for profit, looking for quality not quantity. If a company has a clear continuity plan that works, insurers will probably look more favourably on them."

Statistically, a commercial business can expect to suffer an incident once a decade. For IT-dependent companies who experience a major disaster without some form of contingency planning, 40% never reopen for business, 40% reopen but fail within 18 months and only 8 per cent survive in the long term. In spite of this, few companies make business continuity planning a high priority.

"Less than 10 per cent of companies have a formal audited business continuity plan or relationship with a hot site," comments Jim Duncan, technology product manager, St Paul International. "In the last three to four years there has been a greater awareness of appreciated dependencies. US companies have a requirement for business continuity plans, and once an Irish company signs a contract they have to put a plan in place, but this is rarely followed up."

The Millennium Bug undoubtedly made more companies focus on business continuity planning, but this was essentially an IT-focused exercise. Today, US business influence, the Euro, and a harder insurance market are compelling reasons for companies to move responsibility for business continuity planning out of the IT department and into the board-room. As companies become more reliant on external businesses and have a greater dependency upon technology, the clear message to Irish businesses is to integrate continuity planning into their insurance and risk management strategies.

Foot & mouth - insurers escape
Foot and mouth disease (FMD) may have failed to spread in Ireland on the same scale as the UK, but the effects have been far reaching. From agriculture to tourism, the effects will be felt hard in Ireland for some time to come. But in spite of the costly economic situation, the insurance industry will emerge relatively unscathed from the outbreak.

The last FMD outbreak in Ireland was in the 1940s, and consequently only a handful of Ireland's estimated 90,000 full-time and 50,000 part-time farmers had the consequential loss extension for FMD. While government compensation may be adequate for re-stocking culled livestock, there is no other insurance provision to tide farmers over the six months wait period before they can re-stock.

FBD Insurance insures 90 per cent of the Country's farmers, but has minimal exposure to the problem. FBD suspended the FMD extension under their policy for new business when the disease hit the UK on the 21st of February. Martin Moran, underwriting manager for FBD, explains that the FMD cover had virtually no takers before the crisis. "Ireland had been FMD free since for so long, and only a handful of our customers had the cover."

Moran predicts that the demand for FMD cover will soar after Ireland gets the `all clear', but there will be many factors to consider before the cover is reinstated. "When the scare came about in the UK we suspended cover. When we get the all clear there will be great interest in FMD cover, but at the moment we cannot decide whether we will be offering this again. We don't know if this outbreak is the start of more frequent outbreaks for the future. We need to look at all the issues before we reinstate cover and decide premium levels."

Many farmers have other business interests to help make ends meet. From sporting events and leisure activities through to bed and breakfast, the countryside and rural communities depend on tourism and leisure to boost their agri-businesses. But even here there is no help from insurers, because there is no coverage for FMD under a business interruption policy, even under a notifiable diseases extension, as this is only for human diseases. Some specific cancellation policies offer limited cover for events, but this varies depending on individual policy wordings.

In the coming year the US slowdown will affect Ireland in terms of job losses in the high tech sectors, and FMD will significantly affect the tourism industry, resulting in job losses in the tourism sector. While the problem at the moment isn't an insurance issue, any slowdown could have an unpredictable affect on the insurance market through recession-related insurance fraud or inability to afford insurance.

FMD is a silent stalker. It is unseen, unheard, yet it affects everyone. In the aftermath of the present outbreak there will be high demand for insurance, but it is unclear when and if FMD cover will be widely available and affordable.