Insurance and Business Continuity Management
Correlation between risk management and business continuity management are now embedded in the insurance purchase process. Insurance is central to BCM – but it is not always given the attention that it deserves. There are at least three aspects of insurance that need to be considered in relation to BCM:
? Management may take the view ‘we have insurance – why do we need to concern ourselves with BCM?’
? It is very important to work closely with those responsible for insurance cover in the organization and to understand exactly what is covered.
? The insurance scene has changed dramatically since the events of September 11, and unless you can convince your insurers that your organization has addressed the issues of business continuity it may be difficult – and certainly expensive – to get insurance cover.
Some organizations take the simplistic line that just because there is an annual budget for insurance, risk is looked after and that there is no further need to worry. This they feel leaves them immune from threats and disasters, and anyway, these things happen to companies that are not insured.
They may also feel that by insuring their operations they will be immune from large disaster costs because the insurance will look after them. This is not totally correct:
? Insurance companies will look for the disaster avoidance and recovery plans and actions, and if they are deficient this will certainly impact on any settlement.
? If there is a claim, subsequent premiums will most likely increase.
? There are several types of coverage, and there is a need to be sure of precisely what is covered and in what circumstances.
This may be a minority view, but it does indicate the difficulties that those responsible for the implementation of business continuity have to face. Insurance is a necessary part of the total business protection and recovery plan
– but it is only a part.
? It may provide finance in the event of a problem arising. This money may not be instantly available and sometimes there can be a substantial delay before the cheque arrives.
? It will not keep customers supplied or guarantee that market share will be recovered.
? It will not protect the organization’s reputation and image.
? Insurance for loss of profits, or for increased cost of working, will cover only a defined period – which in practice may prove to be inadequate.
? Proving loss of profits can be very difficult. The outcome may be based on historical performance and may not take account of recent market developments.
? It may be particularly difficult to prove loss of profits in the case of a service business, with arguments to suggest that the situation may be simply a case of deferred sales.
Nevertheless, insurance should be considered part of the continuity planning where an appropriate insurance strategy will provide a lifeline in the event of a disaster.