To understand why business interruption insurance cannot be purchased on its own, let’s first understand how coverage actually works for a business interruption policy.
Business interruption insurance is most frequently activated when a business owner suffers property damage at their business premises, and can’t operate their business normally. This could be the result of a fire, explosion, water leakage, flood, or some other major risk that’s struck and affected the company. For instance, let’s say you run a restaurant. There’s a massive fire in the kitchen from a gas leak which destroys your entire premises. In such a scenario, you’re going to need compensation to rebuild your property. On top of that, you’re also going to need business interruption benefits to help with the costs of keeping your company afloat. Since you won’t be generating revenue, you’ll need financial assistance to continue paying your staff their salaries, paying your landlord the rent, paying your suppliers for purchased inventory, and paying off many other miscellaneous expenses. Business interruption insurance takes care of all that for you.
When you encounter such an incident that requires business interruption coverage, it’s probably also going to require you to activate property damage cover. This is why commercial property insurance is always bundled together with business interruption insurance. Since both these covers are always bundled, you’ll find that business interruption insurance is commonly found as “Section 2” inside a commercial property insurance policy. “Section 1” is the commercial property cover itself.
How would a business interruption insurance policy work together with commercial property insurance to protect me?
Let’s look at an example to illustrate how a business interruption policy would protect your company.
A metal manufacturer suffered a fire at its factory. The manufacturer was forced to shut down its factory for 3 months to conduct repairs. The manufacturer had to hire a firm to clear a massive mound of post-fire debris that was left behind – burnt walls, destroyed equipment, burnt product, and more. During the 3 months that the factory was shut down, the manufacturer lost 25% of its revenue as it was unable to fulfill contract orders. The company also had pay its staff overtime to deal with the crisis.
Here are the costs that a commercial property insurance policy, with a business interruption policy, would pay for:
Burnt down factory: Pay the costs to rebuild the factory to its original condition before the fire
Lost equipment and inventory: Pay the costs to replace equipment (or repair if possible), and costs to replace the lost inventory
Massive debris: Pay the costs to clear the debris so that rebuilding work can begin. This is often a very significant cost and will form a large percentage of the claim amount. A small retail shop fire could cost $20,000-$30,000 in debris removal alone! Removing debris from large factories could cost hundreds of thousands (or even millions). Business owners who have suffered a fire loss are usually surprised at just how much debris removal costs!
Lost revenue/contracts: Pay the costs for lost revenue. Note: The exact costs that the business interruption policy would pay for will depend on the type of loss that you choose to cover. For instance, business interruption policies can cover lost revenue, lost gross profit, or loss net profit. The most common type of cover is for lost gross profit.
Staff overtime: Pay the costs for staff overtime wages, and also additional staff that may be hired to help the business get back on track
I still want to buy stand-alone business interruption insurance. Is there really no alternative?
You’ll need to purchase commercial property insurance together with business interruption insurance. It does not make business sense for an insurance company, from either a risk-management or underwriting perspective, to offer stand-alone business interruption insurance.
That said, you shouldn’t be put off by the potential cost of purchasing commercial property cover. Commercial property coverage is affordable – especially so when you get it from Provide. Our commercial property insurance starts from just $9/month for $100,000 in coverage, and can be easily adjusted upwards for greater coverage needs (we can assist you with up to $250 million in coverage for each property you have, which is quite a staggering amount of protection).
Where should I get business interruption insurance for my company?
Our business interruption insurance is priced at very affordable rates. For example, we offer $20,000 in business interruption insurance (e.g. for a typical professional service firm, like an Accountant), for just $3/month. This means that business interruption insurance for the vast majority of companies is highly affordable.
A common question that business owners have is whether their business interruption insurance will cover power outages. The quick answer is yes, but it’s important to identify the cause of the power outage to ensure that coverage will apply. Most business interruption policies will only cover power outages caused by utility companies suffering some kind of property damage at their power generation facilities. This means that the power generation plant must suffer physical damage, such as from a fire, flood, explosion, or other causes. If your business suffers a power outage because the utility company was conducting routine maintenance, or because the government ordered the utility firm to shut down for safety reasons, then ordinarily, you will not be covered for business interruption losses.
Also, coverage will depend on the specific wording of your business interruption policy. Some insurers in Singapore will automatically cover business losses caused by power outages. Some insurers won’t include this as an automatic cover, and may require you to specifically request for it, with additional premiums payable. If you feel it’s important for you to have coverage for power outages, then make sure you read through your policy wording to ensure that this coverage term is included.
Business interruption coverage for power outages can get complicated. This article will help to explain the specific scenarios where your business interruption cover will kick in to cover you against losses suffered from power outages.
What should I look for if I want business interruption insurance for power outages?
Your business interruption policy wording should have a “Public Utilities” clause, which states that business interruption coverage applies in the event of a failure of utility services to your company. Look for a clause that is similar to the one below in your policy wording. It shouldn’t be hard to find. Just search for “Public Utilities” – if it’s in the wording, then you’ll have the coverage.
Let’s take a look at a sample Public Utilities clause (emphasis mine):
“We extend to cover losses resulting from interruption or interference with the Business as a result of damage to property at any electricity station, sub-station, gas works, or water works from which You obtain direct supply, provided the supply failure extends for a minimum of 12 hours, and Our liability shall only extend to such period exceeding 12 hours.”
That’s quite a lot of legalese. Let’s break it down into layman’s terms.
The sample clause above basically means the following:
The insurance company will cover you for business interruption losses due to public utility failures
These utility failures must be caused by the utility plant suffering some kind of property damage
Examples of covered utility failures include power outages, water supply outages, and gas supply outages
Any power outage or utility failure must last for more than 12 hours in order for coverage to take effect
What else is covered besides power outages? Do utility failures only mean an absence of electricity supply?
As you can see from the sample wording above, it’s common for business interruption coverage to protect you against more than just power outages. Water supply and gas supply faults are commonly covered too. Such broad cover is good since electricity, water, and gas are essential for all businesses and homes to run.
Must my power outage be caused by a specific reason in order for me to receive business interruption coverage?
Yes. In the sample policy wording above (which is quite representative of most business interruption policies), there is a key phrase that often goes unnoticed by business owners. This key phrase is that insurance coverage only applies “as a result of damage to property at” the public utility plant itself.
What are the implications of this? It means that you will not receive coverage if your power supply is interrupted because of any other reason that the utility plant’s premises suffering physical damage.
Let’s clarify this with some concrete examples. Here are some situations where business interruption coverage would NOT apply:
The power transmission lines along the road were destroyed by a storm. Since the power lines were damaged, you couldn’t receive electricity. However, the utility plant that you receive power from remained undamaged. Coverage would not apply here as the transmission lines are not a part of the utility plant’s premises.
The government orders power plants across the country to shut down. Since the utility plants have not suffered physical damage, coverage would not apply here.
The utility plant shuts down its electricity, water, and gas supply (e.g. for routine maintenance, or for safety reasons). As long the utility plant itself is not damaged, coverage would not apply.
The utility plant suffers a cyber attack which interrupts its cooling systems, damaging the utility plant and cutting off its power generation abilities. Although physical damage has been suffered, most insurance policies contain an “Absolute Cyber and Data Exclusion”, which exclude losses stemming from a cyber attack. Coverage would not apply here.
Let’s look at opposite scenarios now. Here are some situations where business interruption coverage WOULD apply:
The utility plant suffers a fire, damaging its ability to generate water and electricity. Your power and water supply get cut off. Coverage would apply here since the plant’s premises were physically damaged.
A natural disaster (e.g. earthquake or flood) destroys the utility plant. Coverage would apply here.
The utility plant’s cooling systems overheat due to poor maintenance, damaging its ability to generate electricity. Its water pipes accidentally burst due to mistakes made by their own engineers. Many customers are thus left without electricity and water. Coverage would apply here.
It’s also helpful to take a look at some real life examples where major power outages have affected businesses.
Real life example 1:
In late February 2021, a massive snowstorm struck Texas in the Unites States. The snowstorm that hit Texas damaged many overhead power transmission lines. This cut off electricity supply to millions of people, and tens of thousands of businesses across the State. Chillers and freezers were left unpowered, causing F&B businesses to lose their food inventory. Offices couldn’t operate their electronic equipment. Manufacturing facilities were forced to shut down. If all this damage wasn’t a nightmare in itself, what made the entire situation worse was that many business owners were suddenly finding out that their business interruption insurance couldn’t cover them! Many insurers in Texas had denied the slew of business interruption claims that were filed. Was this just another case of insurance companies playing dirty tricks the moment their clients started filing claims? Well, not really. The snowstorm didn’t actually cause physical damage to the utility plants themselves. The primary cause of power outages was downed power supply lines. In the US, most power cables are laid across miles and miles of overhead poles, completely exposed to the fickle and devastating power of the elements. This is very different from the situation in Singapore, where power cables are safely buried beneath the ground. Many such power poles in Texas came were toppled by the brute force of the snowstorm, damaging the electrical cables that delivered power to homes and businesses. Since the damaged power cables were not within the utility plant’s premises, business interruption insurance was not applicable for such scenarios.
Other businesses that had suffered physical damage to their own business premises as a result of the storm were fine with their insurance claims. This is because business interruption insurance covers businesses if they can’t operate, due to damage suffered to their own premises.
Real-life example 2:
In 2019, huge wildfires engulfed northern California, causing more than 100,000 people to be displaced from their homes. The cause of the massive conflagration was determined to be downed power transmission lines from Pacific Gas & Electric (PG&E), a large utility corporation. The utility companies determined that the best way to stop the massive fires from spreading even further was to shut down their electricity transmission services. PG&E and other major utility companies in California shut down their power services from 9th October 2019 to 1st November 2019. Power services were restored intermittently throughout this 3-week period, but for most of this time many residents and businesses were left struggling without power. Many F&B businesses suffered tens of thousands of dollars of losses as their inventory rotted. Manufacturing companies suffered millions in losses with idle factories. Because of the sheer breadth of the fire, many of the utility companies’ own facilities ended up being damaged, too.
Businesses in California started filing business interruption insurance claims for their losses suffered during this massive power outage. For businesses that had suffered physical damage due to the fire, their claims went through fine. For businesses who received utilities from a utility plant that had been damaged by the fire, their claims went through fine. But for those businesses who received utilities from a plant that had not been damaged, and whose own business remained unscathed by the fire, their claims did not go through. This is because they didn’t suffer property damage to their own business, and their utility provider also didn’t suffer any property damage themselves.
Although these 2 real-life examples are from the US, they are good demonstrations of how business interruption insurance functions when it comes to power outages. There is complexity involved in determining whether claims are admittable (or not). Most business owners may initially think that any power outage is covered. In reality though, the cause of the outage is absolutely fundamental to determining whether coverage applies.
It’s important to understand the situations in which business interruption insurance would and wouldn’t apply. That way, you can request for broader coverage from the get-go if you need it, and you won’t be caught off-guard if your business gets hit with a power outage and suffers losses that you want to claim back from the insurer. It’s also worthwhile to speak with an expert who can provide you with proper advice on business interruption coverage.
Consider additional protection against power outages
It’s a good idea to not rely solely on business interruption insurance to protect your company against power outages. If your business will suffer significant losses if you don’t have power access, then you should invest in back-up power generators. Businesses like restaurants, bars, data centres, and factories would all benefit from having a source of back-up power.
Must the power outage last for a minimum time period, before business interruption insurance kicks in?
Yes. Your business interruption policy will specify the minimum number of hours that you must be without power, water, or gas. This is called the “time excess”.
For instance, if your time excess is 12 hours, then you must be denied utility access for at least 12 hours. Once you have been without power, water, or gas for more than 12 hours, you can file a business interruption claim. This is, of course, provided that the cause of the utility interruption was due to a valid cause (as explained in the preceding paragraphs).
The amount of time excess set is meant to exclude small interruptions that may commonly occur. These small interruptions of 30 minutes, or a couple of hours at most, may occur due to routine maintenance works. Minor interruptions are easier for businesses to handle with basic contingency planning. For instance, if a restaurant knows that its electricity will be interrupted for 1 hour due to power supply maintenance, it can pack its fridges with lots of ice to keep the food cold during that short period. Food losses are unlikely to occur if the restaurant is prepared. Excluding small interruptions also helps to keep premiums for business interruption insurance affordable.
How can I get business interruption insurance for power outages?
You can purchase business interruption insurance online here, starting from just $9/month. You’ll get an instant quote, and you can purchase your coverage online within only 3 minutes. Provide’s digital platform helps you save up to 25% on business insurance. Our business interruption insurance covers losses due to power outages.
SME owners are often focused more on growing their top line than on managing risk. When you’re running a smaller company, that’s a natural instinct. However, SMEs have much less cushion than large enterprises to protect themselves if something goes wrong. Injuries to employees or customers, fires, equipment breakdown, and lawsuits can all wreak significant damage on an SME’s profitability.
Of course, simply carrying a comprehensive business insurance policy doesn’t guarantee that you’ll receive 100% of any claims amounts that you file. As a policy holder, you need to make sure that you don’t commit some basic mistakes when filing claims. Otherwise, the outcome of your claims may be adversely affected.
Here are the 6 most deadly business insurance claims mistakes that SME owners make, along with an insurance insider’s advice for avoiding them.
Mistake 1: You didn’t notify your insurance broker immediately
If you encounter a situation that you think might result in a claim, contact your insurance broker immediately. For instance, if you own a shop and have Commercial Property Insurance, and your shop suffered a fire, call your broker at once to let them know your premises has been burnt. If you have professional indemnity insurance, and your business has been served a lawyer’s letter, notify your broker at once. Don’t wait until a lawsuit has commenced and is well under way before finally notifying your broker.
Most insurance companies have claims departments that are staffed with quick-response teams. These teams are responsible for rapidly providing advice on the next steps that you should take when faced with a claimable situation. For instance, if you carry Professional Indemnity Insurance and notify your insurer of an impending lawsuit, your insurer will very quickly take over your legal defence for you. The insurance company’s legal team will step in to defend your company, since it is in the mutually beneficial interest of both you and your insurer to win the case.
The sooner you notify your insurance broker about a claim, the quicker and easier the claims process will be. When assessing any claim, the first question any insurance company will ask is: when did the incident occur? If you provide a date that stretches back an unduly long time, the insurance company will have to conduct a much more thorough investigation during its claims assessment process. This will involve more questions, more site visits, more phone calls, and just generally more effort for everyone involved, including yourself. This is understandable, since insurers have strict controls to prevent insurance fraud, or the inflation of claim amounts. If you delay the notification to your broker, it may also suggest to the insurance company that perhaps your claim was not as bad as you’ve made it out to be. If it was really that severe, surely you would have notified them immediately after the incident occurred?
Mistake 2: Admitting fault
Never admit fault. In the event of any injuries, property damage, or lawsuits, never admit to other parties that you were at fault without first consulting your insurance company. This helps to protect your own legal position. Openly stating that you made a mistake can jeopardise the strength of your case in a lawsuit. Most crucially, admitting fault can be grounds for the insurance company to deny your claim. Unless you have the express, written consent of your insurance company to make payments for damages, you should never admit fault first.
When in doubt, simply inform your insurance broker of your claim. The insurance company – with their formidable legal experts and claims professionals – will step in to advise you on the next steps to take.
Example: Mr. A runs a logistics company. While delivering bulky goods one day, he accidentally damaged the side door of someone’s car. There was a big dent in the door, and the window was partially broken. The owner saw this, and filed a legal claim of $1,000 to repair their car. Mr. A was flustered by the legal letter. Instead of immediately notifying his insurance broker, Mr. A apologised for causing the damage, and quickly paid up the amount demanded. Later, Mr. A filed a claim with his insurance company to recoup the $1,000 he paid.
Analysis of example: In the example above, the insurance company has a right to deny the claim. Making a payment to the owner of the car might seem to be an upstanding thing to do. However, in terms of protecting his legal interests, Mr. A performed poorly. He should really have notified his insurer first, and gotten permission from them before making any kind of payment or even admission of wrong. Mr. A has already forked out good money for his liability insurance policy, so it doesn’t make sense for him to pay damages out of his own pocket. Furthermore, Mr. A was lucky that the damage in this case was relatively minor, and the legal claim was only for $1,000. If the damage had been more severe, or involved a personal injury, the lawyers of the opposing party could have pursued the case much more aggressively. Because he had admitted fault, Mr. A could have been on the hook for a much higher sum of money – potentially tens or even hundreds of thousands, depending on the damage or injury caused. If he had informed the insurer first, the insurance company would have activated their lawyers to negotiate on Mr. A’s behalf. In this case, the insurer has a right to deny the claim. Mr. A would have to rely purely on the goodwill of the insurer if he wishes to be reimbursed.
Remembering not to admit fault also prevents you from falling victim to frivolous lawsuits. Such lawsuits can be launched by opportunistic individuals looking to make a quick buck, at your expense. To such individuals, hearing an admission of fault can be an open and delectable invitation to wring money out of your company.
Mistake 3: Not sufficiently documenting damage
In any claim, the insurance company will need to see proof of damages. If you don’t have sufficient documentation of damages that you’ve suffered, then the insurer will not have sufficient information to work out an accurate calculation of the true extent of damage or harm you’ve suffered. Working off such imperfect information may eventually result in a lower claims pay out, or even a denial of your claim.
Here are some tips to ensure that you have sufficient proof for your insurance claim:
If physical harm has been suffered, photograph the damage or injuries immediately. Try to get a few different angles, and some close-ups if possible, so that details can be seen by the insurer’s claims adjusters. If particularly expensive equipment has been damaged, you may wish to focus on photographing that first.
Keep copies of any bills you incur as a result of the claim. You may be able to claim these expenses back from the insurer, depending on the type of insurance you have and what you’re claiming.
If you are filing a worker’s injury claim, make sure that you submit the necessary reports to MOM. Insurers require the injury incident report you submitted to MOM to pay out any claims. Keep copies of any doctor’s bills or medical reports.
Try to fill out the insurer’s claim forms quickly after the incident has occurred. You should do this while your memory is still fresh so that you can recall most of the details. Don’t skimp on your explanations – the more information you provide, the easier it is for the insurer to assess your claim.
Document all of your communication with your insurer. This documentation will minimise the possibility of disputes in a “he-said-she-said” scenario.
Mistake 4: Disposing of damaged goods
It might be tempting to get rid of damaged property, say after a major fire, but you should make sure that you don’t dispose of anything without seeking the insurer’s permission. Firstly, it’s important to retain all physical evidence at the damaged scene for legal purposes. The police and fire department might be involved, and they would need access to the scene to conduct their investigations.
Secondly, retaining all damaged property serves as concrete evidence of the severity of the loss you’ve suffered. The insurance company’s own claims adjusters will need access to the physical evidence as part of the claims assessment procedure. If you hire your own public claims adjuster, these individuals will also need access to the scene of the loss. This helps greatly with quantifying the amount that you’re eligible to claim. Sometimes, it’s hard to get a sense of the value of an item, or the quantity of items through pictures. It can be easier to see the damaged item right in front of you. Such physical evidence will have an impact on the amount that claims adjusters award to you in the end.
Thirdly, for Commercial Property Insurance, it’s common for insurers to have “salvage” clauses that allow the insurer to put up partially damaged property for sale. The proceeds of such damaged property will help the insurer to recoup money from the claims pay outs given to the policyholder.
Fourthly, most insurance policies require policyholders to take reasonable steps to prevent further damage from occurring. Disposing of an item may violate this requirement. The insurer may be able to argue that the disposal of damaged items constitutes a violation of the policy, and may either reduce the claims pay out or deny coverage. Some insurers may cover expenses incurred to prevent further damage from occurring. Speak with your insurance broker to determine if your policy covers these expenses. If it does, make sure to document your bills/receipts and submit them to your insurer as part of your claim.
Mistake 5: Not being familiar with your policy
Many business owners may assume that their business insurance policy covers any and every risk. They may not have read the policy wording properly before purchasing their policy. When a claim arrives, tempers can flare and fingers get pointed.
Although insurance brokers and other intermediaries will do their best to advise clients, it’s important that policyholders are themselves familiar with the fundamentals of their coverage. You certainly don’t have to know every technical detail (leave that to the experts), but do be aware of what situations are generally covered, and what situations are generally excluded.
Let’s take a look at Commercial Property Insurance, as an example. Some Commercial Property Insurance policies are tightly worded, and will exclude damage from sprinklers, burst pipes, and other water sources. This is because such damage is quite common, and insurers that offer such policies with narrower coverage wish to reduce their losses. Other insurers will word their policies more broadly, and will cover water damage from a wide variety of sources – burst pipes, sprinklers, leaks from the upstairs neighbour, etc. (Plug: Provide’s Commercial Property Insurance policies are broad and cover water damage. Click here to buy it online!). If you feel such coverage is important to you (burst pipes certainly are common), then it’s important that you understand whether your policy covers such an event or not. Don’t wait until a pipe actually bursts before you get a nasty surprise that you don’t actually have any coverage.
Insurance policies aren’t the most simple things in the world. Every client has their own unique expectations of what they want covered. In a perfect world, every risk under the Sun would be covered. Of course, such a policy would be prohibitively expensive to all but the most wealthy corporations. So it’s important to identify which risks worry you the most, and then to go about purchasing a policy to meet those needs. Here at Provide, our policies are highly comprehensive, and meet the needs of the vast majority of SMEs in Singapore.
Also, when you know what you’re covered for (and what you’re not), you can identify coverage gaps. You can then go about purchasing additional policies to fill these gaps, ensuring that your company is full protected.
Mistake 6: Bending the truth
Policyholders may often be tempted to exaggerate when filing a claim. After all, it’s in their best interests to claim the maximum amount possible. It’s important to remember that committing insurance fraud is illegal. Under the Penal Code, fraud can be punished by up to 20 years in jail, and/or a fine.
Be honest with your insurance company about what happened. Speak with your insurance broker, and tell them the truth. There is no need to exaggerate, as a good broker will advocate for the claims you file. Both insurers and brokers have seen numerous claims, and it’s often easy to tell when someone is not being completely honest. Dishonesty can result in your claim being denied.
Filing claims right saves you time and money
When you have an insurance claim, it can be a frustrating and worrying time. Your business is affected. There’s uncertainty over how soon the insurance company will pay your claim. You’re left wondering when business will ever get back to normal. To minimise such worries, it’s crucial that you follow the tips above to avoid insurance claims mistakes. Filing your claims properly will help you get your claim paid in the quickest and smoothest fashion possible. It’s also important that you pick an insurance broker that will serve as a strong claims advocate for you. When you choose Provide as your insurance broker, we’ll be there with you every step of the way. Our expert brokers will help you get back on your feet in no time.