With the supply chain issues and economic uncertainty, you should consider contingent business interruption insurance for your business.
What does this type of insurance cover, what does it not cover, and who may need this particular insurance coverage? How does contingent business interruption insurance differ from regular business interruption insurance?
There are many factors to consider when deciding what insurance coverage best suits your specific type of business and industry.
Contingent business interruption (CBI) insurance provides financial assistance when loss of a key supplier, business partner, or customer impacts your ability to do business. This type of loss coverage insurance is an extension, or rider, of business interruption insurance.
What is the difference between contingent business insurance and business interruption insurance?
CBI insurance helps protect your business from supply chain disruptions or other businesses you rely on to conduct business. In general, this disruption is related to physical damage or an insurance claim for commercial property in order for it to be eligible for coverage.
CBI insurance typically covers losses when a business is forced to temporarily close or halt a business due to a supplier being impacted by a disaster, such as a tornado destroying the supplier’s warehouse and inventory. Contingent business interruption also assists in the event a supplier, business partner, or main customer has a major issue such as a fire or burglary. CBI insurance helps businesses stay afloat while they look for a new vendor or customer to get back on track.
Business interruption insurance, on the other hand, tends to cover your business’ loss of income in the event of a disaster that directly affects your own business, rather than that of a supplier or manufacturer. Specific covered events can be discussed in detail with your insurance agent.
CBI insurance is geared for small business owners who want to protect their business from unnecessary risk and uncertainty. Contingent business interruption coverage can apply to several types of businesses, including restaurants and staffing agencies.
While contingent business interruption insurance may protect your business from some supply chain disruptions, this does not guarantee supply chain issues, such as delayed inventory shipments due to Covid-19, will be covered. In broad terms, the disruption has to be related to actual physical damage (of the supplier or manufacturer’s warehouse, for example) or approved insurance property damage claims to be covered.
The common denominator for CBI insurance eligibility is the business depends mainly on a limited number of specific suppliers, manufacturers, or customers for the bulk of their revenue. If this applies to your business and you’re considering adding this to your policy, it’s best to consult with your insurance agent to see what will and won’t be covered. This contingent coverage generally helps provide the funds to cover payroll, rent, and other business operations.
There are several things to consider, including
- you depend on one manufacturer that can’t be easily replaced
- a few customers, or clients, account for the majority of your income
- your business relies on a single specialty supplier to provide your business inventory
- you’d be forced to suspend business if they had to close due to a natural disaster
- your manufacturer is in a location prone to hurricanes or other natural disasters
If you’re curious about CBI insurance options, general liability, and coverage terms, please contact an insurance agent.