Auto Insurance Quotes ~ Japan crisis offers lesson on insurance : The earthquake and tsunami in Japan have interrupted shipments of parts and finished goods to companies in the United States.
Many companies that bought contingent business interruption insurance are calling their insurance carriers. These policies will reimburse a company for its expenses and lost profits when it can't operate because a disaster has struck a supplier. It's a type of insurance that companies of all sizes can discover too late that they should have bought.
Business interruption insurance pays a company's expenses, such as rent and salaries, when the business is shut down by a disaster such as a tornado or fire. It is usually part of a standard business policy.
Contingent business interruption insurance kicks in when your supplier can't operate and therefore you can't operate. Even if your company hasn't suffered any damage, if you're unable to conduct business normally because of your vendor's problems, this kind of coverage will pay your expenses. The disaster could, like the Japan quake, be thousands of miles away.
Loretta Worters, a vice president at the Insurance Information Institute, says the insurance often applies only in the case of a disruption from a direct supplier. If the company that is shut down is a vendor to a company that in turn supplies your business, you may not be reimbursed under your policy. When you buy theinsurance, you need to be sure about when you can and cannot recover losses.
Not every supply disruption is automatically covered. Worters says that disruptions because of earthquakes and floods might not be covered unless a company buys a contingent business interruption policy with that kind of coverage. That's not surprising, because companies that buy insurance for their property have to get separate policies for earthquake and flood damage. Worters says companies should check with their insurance brokers or carriers to see if their policy includes such disasters.
Companies with suppliers in any quake-prone area such as Japan or California should consider buying the additional coverage. Most business owners should consider coverage for disruptions caused by flooding. Even companies that aren't in areas at risk for floods can find themselves shut down by rising waters. It only takes a few days of torrential rain to get a flood going. A flood can shut a company down for weeks or months.
Worters says a shutdown because of nuclear contamination is not covered under contingent business interruption insurance. So if a Japanese company can't operate because it has been contaminated by fallout from the Fukushima nuclear plant, its customers would not be reimbursed.
Worters said interruption policies usually have what's known as a time deductible. That means an insurance company won't pay for losses for a set time after a shutdown, such as 48 hours or 72 hours. So you'll have to absorb any losses your company suffers during that time.
You might need to specify your suppliers in your policy. Worters said that some insurers don't offer blanket worldwide coverage. That can be a problem if you sign up with a new supplier but don't update your policy. So interruption insurance can need more frequent attention than you might expect to give your insurance coverage.
