Hurricane Harvey deluged southeast Texas and Louisiana with 27 trillion gallons of water in August 2017. By one estimate, economic losses could total $81 billion to $108 billion, a range that would surpass Hurricane Katrina (2005) and make Harvey the second most expensive storm since 1980.1
Small businesses tend to operate on tight margins, so they can be hit especially hard when extreme weather or an isolated event (such as a fire) results in major damage and/or forces a temporary closure. In fact, nearly 40% of small businesses never reopen after a disaster, and another 25% fail within a year.2
For the sake of survival, it’s important to identify the potential risks that threaten your business, create a thoughtful disaster plan, and obtain adequate insurance.
A business owner policy (BOP) is a package that typically includes insurance for property damage, liability, and business interruption (up to policy limits). Property insurance helps protect a company’s buildings and equipment against a specific list of covered perils.
Business interruption (BI) insurance helps cover lost profits and operating expenses that may continue while a business is closed because of a disaster. It also helps cover relocation and advertising costs so a business can operate from a temporary site. BI coverage generally kicks in after a 48- to 72-hour waiting period under three sets of circumstances:
- There is physical damage to your premises that forces the business to close.
- There is physical damage to other properties (caused by a covered peril) that prevents customers and employees from reaching your location.
- Your property is inaccessible because the government shut down the area due to widespread damage caused by a covered peril.
A business that has to shut down due to a power outage may not be covered, unless an optional endorsement for “off-premises service interruption” is purchased at an additional cost. Also, flood damage is typically excluded from standard BOPs, although coverage may be purchased from the government’s National Flood Insurance Program or some private insurers.
Getting Back to Business
Insurers will use your financial records to compare the income generated by the business before and after the disaster, so good documentation may speed up the claims process. Try to keep an accurate business inventory and take photos of the premises and all your business property. Store these and other financial records online so they can be accessed from a temporary location, if needed.