A vital part of any Hawaiʻi business’s risk management strategy is business interruption insurance (BII). BII protects businesses from lost income resulting from unexpected disruptions, helping business owners maintain financial and reputational stability even when dealing with unforeseen events.
In any instance that forces a business to temporarily close creates lost income that can put operations at risk. Hawaiʻi business insurance is essential due to unexpected disruptions not seen in other areas. This breakdown is designed to help business owners better understand this all-important coverage.
What is Business Interruption Insurance?
Business interruption insurance compensates businesses for lost income sustained during a temporary closure. Theft, fires, floods, and weather are often the source of these closures in Hawaiʻi, costing businesses millions in lost revenue. For seasonal businesses in Hawaiʻi, any event at the wrong time of year can be disastrous for their entire year’s income.
For most policies, the events covered by business interruption insurance include:
- Lost Profits: Income that was lost during the temporary closure can be reimbursed based on the business’s historical earnings data.
- Relocation Costs: Sometimes, events force a business to temporarily relocate to a new location, the cost of which may be covered by business interruption insurance.
- Operating Expenses: Operating expenses, fixed rent, and utility costs may still be charged during the temporary closure, but they may be reimbursed.
- Training Costs: The closure may result in employee turnover, resulting in additional training costs once operations resume.
- Cyberattacks: Cyberattacks may be covered by business interruption insurance if the attack results in losses. Liability claims that cause the business to lose income, employees, or other assets may also be covered.
- Extra Expenses: Other operating expenses can be reimbursed if an adequate reason is provided to the insurer.
By covering lost income and other expenses with interruption insurance, businesses can restore their finances to their pre-disaster state, often avoiding the need to take loans. This insurance is often integrated with commercial property insurance, but each provider has its own conditions concerning the definition of lost income and the expenses they will cover.
The Importance of Maintaining Adequate Coverage
Business interruption insurance protects businesses from lost income and other expenses during unexpected closures, increasing their financial resistance. However, businesses in Hawaiʻi need to know how payouts work to make sure they maintain enough coverage.
These policies set a “period of restoration,” which is the time the business has to repair or replace their assets, starting from when the loss occurred. This incentivizes businesses to document and claim lost income or asset value within a certain period.
Businesses with inadequate coverage may not be able to restore their assets within the restoration period. In that case, they may need to extend it with optional endorsements offered by their insurance provider. Businesses need to understand their specific restoration period to make sure their policy will reimburse the full cost.
How to Assess Business Interruption Coverage
Businesses in Hawaiʻi should be proactive about their business interruption insurance needs. Review these three factors to make sure your coverage aligns with your business’s risk profile:
- Current Policy Limits: If you have business interruption coverage through your current insurance policy, review the coverage limit for potential income losses during business interruptions.
- Policy Exclusions: Many policies list exclusions to business interruption coverage, which can include cyberattacks. These are the incidents that would not be covered under your current policy. Inquire about endorsements or additional policies to address coverage gaps before they become lost income.
- Organizational Goals: An organization with plans to downsize, expand, or relocate should re-examine how its goals will impact its business insurance needs. For example, relocating to a building nearer to the coast may warrant an increase in business interruption coverage due to increased weather and flooding risks.
An experienced local insurance agent can help your business review its need for business interruption coverage and compare it to potential policy offerings to find the most cost-effective solution based on your situation.
Contact Atlas Insurance to Maintain Business Interruption Insurance in Hawaiʻi
Business interruption insurance is an important safeguard that protects businesses in Hawaiʻi from unforeseen closures due to fire, theft, weather, and more. These closures can cause lost income while also generating additional expenses such as training and relocation costs. For seasonal and year-round businesses alike, these losses can result in serious consequences, including permanent closures.
At Atlas Insurance, our local agents understand the needs of Hawaiʻi’s business owners. We offer personalized assistance to help businesses secure adequate business insurance, including interruption coverage, that can be changed and balanced for specific coverage needs year-round.
Contact us today and schedule a consultation to learn how business interruption insurance can protect your business.