INSURANCE INFORMATION INSTITUTE
New York Press Office: (212) 346-5500; firstname.lastname@example.org
NEW YORK, September 9, 2011 — Businesses that recover quickly are those that plan in advance. This involves not only purchasing the right type and amount of insurance, but also developing and maintaining an adequate disaster recovery plan, according to the Insurance Information Institute (I.I.I.).
The I.I.I. reminds businessowners that property damage from disasters—whether natural, such as Hurricane Irene, or caused by an act of terrorism, such as the 9/11 attacks—can destroy a business. Fortunately there are steps you can take to be prepared.
Minimize the risk of damage in advance of an emergency:
Develop and maintain a disaster recovery plan:
As part of your disaster plan, make sure to include appropriate coverage such as business income insurance and terrorism insurance.
“Too many business owners fail to think about how they would manage if a disaster damaged their business premises so that it was temporarily unusable,” said Loretta Worters, vice president with the I.I.I. “A business that has to close down completely while the premises are being repaired may lose out to competitors. A quick resumption of business after a disaster is essential and it starts with having the right type and amount of business insurance.”
Insurance losses attributable to terrorist acts are covered under commercial policies for policyholders that elect this coverage. The coverage is provided by private insurers and reinsured or “backstopped” by the federal government pursuant to the Terrorism Risk and Insurance Act of 2002 (TRIA). Under TRIA, owners of commercial property, such as office buildings, factories, shopping malls and apartment buildings, must be offered the opportunity to purchase terrorism coverage. For the terrorism coverage to be triggered under TRIA for commercial policies; a terrorist attack has to be declared a “certified act” by the Secretary of the Treasury.
If a policyholder has rejected terrorism coverage under TRIA, in certain states there might not be coverage or only limited coverage for fire resulting from an act of terrorism. War, nuclear, biological, chemical and radiological (NBCR) events are not covered under commercial insurance policies.
Property damage to commercial buildings from a terrorist attack also may include claims for business income insurance (also referred to as business interruption coverage). More than $11 billion (33 percent) of the $32.5 billion in total insured losses (in 2001 dollars) from 9/11 was from business income, according to the I.I.I.
Business income covers financial losses that occur when a firm is forced to suspend business operations either due to direct damage to its premises or because civil authorities limit access to an area after the attack and those actions prevent entry to the business premises. Coverage depends on the individual policy, but typically begins after a waiting period or “time deductible” of 48 hours and lasts for a period of two weeks to several months.
Business income losses associated with acts of civil authority can only be triggered when there is physical loss or damage arising from a covered peril (e.g., explosion, fire, smoke, etc.) within the area affected by the declaration. The loss/damage need not occur to the insured premises specifically. Reductions in business income associated with fear of traveling to a location, in addition to closure to areas by authorities because of a heightened state of alert, would not be covered by business income policies.
The I.I.I. also recommends that businessowners take a business inventory. An up-to-date business inventory is an important component of disaster planning. It can help you: