| Business insurance – What you may not have thought about… Let’s face it. People have a problem with insurance. Whether it’s at a personal level, trying to understand the seemingly arbitrary way the renewal premium is obtained for their car insurance policies, or comprehending the scope and cover of more complex corporate insurance programmes, most people seem to have a difficulty with the subject. That this difficulty extends to business continuity professionals does however seem surprising given that we are in the ‘risk’ business and one could argue that insurance and business continuity are just different parts of the same risk management spectrum. This lack of understanding was highlighted at a recent business continuity event in London , aimed at the City and Financial communities. At this event many in the audience were surprised to discover that if a company is denied access to its building and is unable to work due to a physical incident in a neighbouring building but has suffered no material damage itself, it would not be able to claim on its Business Interruption policy unless that policy specifically covered denial of access. That this should come as a shock to what one might understand to be a fairly ‘savvy’ group of people illustrates well the degree of ignorance which exists within the business continuity community and perhaps indicates that we need to have a broader understanding of the variety of risk management tools which are available. It also illustrates that, of all the insurance covers, one which has great relevance in a business continuity context and which is greatly misunderstood is Business Interruption insurance. The problem for business continuity practitioners is that they believe, in many instances that the costs associated with an invocation of a recovery are going to be picked up by a Business Interruption (BI) policy, and yet if they don’t understand the BI policy, how on earth can an organisation have an integrated approach to risk management? To use that clichéd term, there needs to be a ‘joined-up’ approach to managing risk within the business environment and the sooner we break down barriers between insurance and business continuity the better. It’s fair to say that there has been an acceptance by the insurance industry of business continuity as a valuable tool in ensuring business interruption claims costs are minimised, however, with a fair amount of evidence pointing to the fact that the majority of business continuity invocations are not associated with ‘traditional’ insurable contingencies such as fire, flood, storm, etc. but are instead, related to failure of infrastructure, or exclusion zones put in place by emergency services, there has to be a question-mark over the degree to which business continuity practitioners can rely on insurance policies to pick up the tab for these non-traditional contingencies. So where does all this get us? Business continuity practitioners need to know more about their dependencies on insurance and the ‘interface’ between insurance and business continuity. For instance, few realise that there are sub-components of BI policies such as Increased Cost of Working Cover (ICOW) which will often cover the additional costs associated with an invocation. Often such covers are included automatically as part and parcel of a BI policy, but if that’s the case, how does one know whether or not the ICOW cover is adequate? They also need to realise that BI policies have what are called ‘Indemnity Periods’ which are the periods over which an insurer will pay a BI claim, in other words the time the insured is expected to be out of business following a claim. Now if one follows the logic that the aim of business continuity is to get your organisation back on its feet again ASAP that should (in theory) mean that an indemnity period should be shorter because the time spent out of business is minimised. However, as a corollary, the ICOW sum insured might need to be increased as the cost involved in invoking a recovery might mean that, in the short term, costs increase due to things like recovery site fees, staff transport and accommodation costs, replacement equipment procurement and so on. Business continuity practitioners also need to be aware of some of the more ‘exotic’ covers which can be obtained. I’ve already mentioned Denial of Access but there are a whole host of others such as: * Utilities Extensions - you can insure for the interruption to your essential services such as gas, electricity etc. Something that in the light of a variety of recent, very disruptive outages may well be worthy of consideration. * Suppliers Extensions –this is where you insure for the interruption to the supply of goods or services from third parties, although invariably you’d only be covered if the supplier is hit by something that you’ve already insured yourself against. Thus a strike by the supplier’s workforce would not be covered. It’s normally split into two sorts of extension - Specified and Unspecified. You get much better rates if you specify which supplier you want to cover. * Contagious Diseases Extensions - this covers you for the consequences of employing a chef with bubonic plague or some such ailment - although I’m sure you could think of more realistic scenarios! * Civil Authorities Extensions – covering losses sustained as a result of government denial of access to your property, due to a covered loss at a location not owned by you. There may be a two or three day waiting period before coverage begins, and coverage generally only applies for a few weeks. These are all insurance covers which have real relevance to business continuity practitioners in that they occur at the interface between the two disciplines. There are many more, but one of the other “problems” with insurance is that as soon as the word is mentioned, eyes glaze over and attention spans shrink - so I won’t go on other than to make a plea that you get to know your insurance programme better. Become familiar with terminologies, covers, underwriting terms etc. because by combining business continuity and insurance knowledge, it’ll enable you to manage risks within your organisation in a far more effective and joined-up way. Ron Miller is managing consultant, Professional Services SunGard Availability Services (UK) Limited. For more information: 0800 143 413, infoavail@sungard.com or www.sungard.co.uk SunGard Availability Services is the pioneer and leading provider of Info rmation Availability services, helping to ensure that more than 10,000 clients in North America and Europe have access to their business-critical information systems.
•Date:4th March 2005 •Region: UK/World •Type:
Article •Topic: BC general |
