Businesses are still reluctant to take out business continuity cover, despite foot-and-mouth and high-profile web viruses. There has never been a better time to sell cover, says John Jackson.

Code Red worm, Melissa and the Love Bug were viruses that could have lost businesses billions worldwide.

In the event, the "worm" did not turn, but it would have sent company bosses studying the small print in their insurance policies to see what, if any, cover they had.

Among those who had their fingers firmly crossed were business interruption (BI) insurance underwriters. Indeed, the threat of cyberspace viruses is adding a new dimension to the growing problems of business interruption.

But BI is now seen as only a halfway stage in the need to keep companies going when, for one reason or another, they are heading for closure. Compensation payment is one thing, but the crucial need is to keep the business up and running, even if temporarily on another site.

Business continuity is the big issue. There is not much point in receiving compensation for damage to a company if there is no business left to run.

Risks everywhere
Recent news headlines are testimony that fire, flood, terrorism (bomb planting and cyber bandits), foot-and-mouth disease and riots are just a few of the sudden disasters that can blow a business off course and even shut it down completely.

Adrian Morris, a director of MPC, which specialises in the management and processing of compensation claims, says the BI market is growing.

He adds: "Insurance is bolting the door after the horse has gone. If you are not fully aware of the risks you have, it may be one for which an insurance policy cannot fully compensate. You must have an understanding of your business and how it is exposed before you can ensure you are properly covered."

He says people will accept they are going to have a knock in a car but, as to their business blowing down, the general attitude is that it is something that always happens to someone else.

He warns: "Until it becomes a standard audit sign-off for everybody, then people will not look at it in any degree of seriousness. But the industry is going in the right direction."

In rural areas affected by foot-and-mouth, tourism policies depend on how they are worded. Some contain reference to contagious diseases, without specifying it is human contagious diseases such as legionnaires', rather than foot-and-mouth. However, some policies have paid out on foot-and-mouth, Morris says.

Chief executive of the Business Continuity Institute (BCI), John Sharp, says: "One big problem is how often companies rehearse their business continuity plans. Insurers and brokers need to be certain about the accuracy of the audit."

Planning is crucial
He points out that good business continuity planning enables companies to have lower premiums because they are less exposed; this is happening in the reinsurance market.

Small business underwriting manager for Royal & Sunalliance, Paul Shattock, says it provides BI for small and medium-sized enterprises (SMEs) as part of a package. He adds that BI is more of an option, with a take-up of between 50% and 60%, leaving a big market to be won over. It also underlines the level of under-insurance by many small businesses.

He argues that, as well as raising awareness of businesses, in some cases there is an additional need to raise the BI profile with brokers.

Shattock says that, for SMEs, insurance is a significant part of the company's spend. Such firms tend to go for minimum cover, ignoring insurance for their trading profit. He adds: "BI can be a complicated area to understand, and there is a need for us in the insurance industry to do more to explain what it is designed to do for businesses."

Teresa Budworth, Norwich Union (NU) training and consultancy manager, says: "Statistics show that, without business continuity capability, companies only have a one-in-ten chance of survival.

"Financial companies and those that rely heavily on information technology (IT) facilities are the most at risk from having no business continuity plan. Although most of these firms have a contingency plan for IT, the majority of them are not tested or, if they are examined, 80% of such plans do not work the first time they are tested.

"Other businesses at risk are those with single premises or with little prospect of assistance - in other words, most businesses are vulnerable."

Norwich Union (NU) is strong on risk management (see box) and provides a business continuity health check, where a consultant will assist a company's planning. NU also provides business continuity software to clients.

Limited cover
Foot-and-mouth has devastated the farming industry, but cover for the disease was too expensive for many farmers. Although there have been lurid headlines of some farmers receiving more than £1m in compensation, restocking a lifetime's work in pedigree cattle, valued at around £30,000 each, is not something achievable overnight.

NFU Mutual says that only about one livestock farmer in ten was covered for foot-and-mouth disease and, while they are accepting renewals, they are not taking on new business for consequential loss. Instead, they are waiting until the crisis is over before they will reassess premiums.

The message here is stark: small businesses will be dangerously exposed unless, alongside their business interruption policy (where they have one), they also have business continuity contingency planning.

Here is a market waiting for brokers to step in. If a company cannot survive for lack of risk management planning, then that is a loss to the broker and the insurer.