Firms face business interruption cover shortfall.
London’s leading professional services firms could end up overpaying for prime office space by underestimating the impact of a terrorist attack or flood on the City, says Aon.
The global insurance broker said more firms need to grasp the true costs of responding to an incident and build these into business interruption (BI) insurance cover and continuity plans.
James Leow, senior consultant at Aon Global Risk Consulting, said: “Securing an effective business interruption insurance policy goes hand in hand with having a clear and practical business continuity plan. Striking this balance will provide firms with the necessary support so they can continue to effectively carry out their core business.
“Even if firms have business continuity plans, they are often focused on minimising the impact of an accident instead of strengthening the plans with other pro-active measures, such as restoring their IT and finding alternative office space. These will help firms to fully recover their business operation in the most efficient, cost effective and practical way.”
The government’s National Risk Register has identified pandemic flu as the highest risk. But City firms also face the threat of terrorist attacks, floods through being situated in a hotspot by the inadequate Thames Barrier, and more traditional fire risks.
Aon said despite strong disaster planning, many accountancy firms are failing to consider their responsibilities over the subsequent period to ensure the business starts running smoothly again.
One of the key factors for eroding profits will be the increased costs of premium office space if a terrorist attack, for example, leads to several companies looking to relocate. These costs will be covered under a business interruption insurance policy but Aon is warning that the standard 12-month indemnity period may be insufficient.
As rent eats into income, accountancies could also face other costs such as penalties for delays in transactions during M&A activity. However, this is insurable by extension to a BI policy.
Leow said: “More positively, every risk should present an element of opportunity. As such, companies should look at continuity planning as a trigger to achieve potential premium savings through improving their current mitigation controls and building upon their relationship with their underwriters.”