5 Best Practices to Assess & Implement Downtime Insurance
Unexpected downtime events can deliver a devastating blow to businesses, resulting in substantial revenue losses, increased expenses, disrupted operations, and reputational damage. According to one estimate, the average manufacturer faces over 800 hours of downtime annually, costing tens of thousands in lost productivity and sales.1 With so much at stake, having downtime insurance is an invaluable safety net for commercial enterprises across industries. This guide will explore best practices around evaluating risks, securing coverage, and leveraging policies to rapidly restore business function after a disruption.
Why Downtime Insurance Matters
Downtime insurance provides financial protection by covering income lost and extra expenses incurred when operations are halted unexpectedly. Policies can cover disruptions stemming from:
- Natural disasters
- Equipment failures
- Power/utility outages
- Cyber incidents
- Supply chain interruptions
- Civil unrest
- Other business interruptions
For example, a storm knocks out electricity at a manufacturer for 3 days, preventing production. The income and extra costs (equipment rentals, etc.) during this incident would be covered by their downtime insurance. Policies give businesses the ability to regain financial stability quickly after a disruption, rather than struggling to recover over many months or years.
Best Practices
1. Conduct Thorough Risk Assessments
The first step is gaining a comprehensive understanding of vulnerabilities facing your operations.
- Analyze past incidents causing downtime and estimate likelihood of recurrence.
- Review business processes to pinpoint risks.
- Assess stability and redundancy of utility services, suppliers, supply chains.
- Evaluate resilience of equipment and probability of failure.
- Consider external threats like natural disasters, cyber risks, and civil disturbances.
Conducting rigorous assessments ensures policies adequately address potential business interruption events.
2. Secure Suitable Coverage
Multiple factors affect the availability and cost of downtime insurance:
Risk profile – Businesses perceived as higher risk may face limited carrier options and higher premiums.
Industry – Some sectors are exposed to more disruptions than others.
Location – Operations in certain geographic areas carry increased environmental and other risks.
Size and complexity – Major multisite companies can be costlier to insure.
Risk management – Insurers favor policyholders who proactively mitigate risks.
Carefully evaluate needs and work with reputable agents/brokers to secure suitable coverage from financially stable insurers.
3. Implement Loss Prevention Measures
Insurers advocate policyholders take steps to minimize downtime, including:
- Installing redundancies like backup power systems.
- Conducting preventative maintenance and testing.
- Creating contingency plans for different disruption scenarios.
Implementing these measures makes coverage more available and affordable.
4. Review Policies Annually
Reassess policies during strategic planning to ensure adequate protection as operations evolve. Confirm:
- Coverages align with current risk environment.
- Policy limits fit potential loss projections.
- Terms and exclusions are optimal.
- Insurer still meets needs.
Periodic reviews help avoid gaps in protection.
5. Keep Detailed Records
Carefully document financials, operations, and other information relevant to demonstrating losses from disruptions. Thorough records make documenting claims easier and faster.
6. Report Claims Quickly
Promptly notify insurers when disruptions occur. This speeds their response and demonstrates responsible stewardship.
Following these best practices enables companies to secure, benefit from, and properly manage downtime insurance. The result is the ability to rapidly rebound and restore business function after unexpected disruptions.
