Geopolitical tensions, climate threats and economic instability have continued to hold the world in a state of permacrisis in 2023.
Combined with the fallout of digitalisation and decarbonisation, such insecurities are likely to crank up rates of business interruption this year, according to Georgi Pachov, head of portfolio steering and pricing at Allianz Global Corporate & Specialty SE.
Pachov’s outlook was reflected in the insurer’s risk barometer report, which ranked business interruption as the second greatest concern of over 2,700 global businesses, brokers and trade organisations for the year ahead.
The risk was outvoted by cyber attacks which were additionally identified by respondents as the cause of business interruption they feared the most.
In a time of such uncertainty, preparation is fundamental to avoiding loss or, worse, insolvency.
One of the most effective mitigation measures is to establish and implement a robust business continuity plan that stipulates a considered response to all eventualities.
Flood damage, supply chain breakdowns, ransomware attacks – whatever the emergency, you need a tested plan which clearly allocates the roles, responsibilities and actions to take during a crisis.
Communication is crucial
Quenching the fires of operational disruptions through business continuity management is something companies have been doing successfully since the 1970s.
First emerging as a formal discipline alongside the development of primitive computer systems, business continuity came to prominence in the aftermath of 9/11, the pandemic and growing climate change impacts.
Given the more varied and contemporaneous nature of today’s crises, the need for companies to test and implement a business continuity plan is even more pivotal than it was 40 years ago.
But what exactly should a successful plan contain?
First and foremost, any business continuity plan worth its salt needs to outline the company’s objectives and values as well as spelling out the exact procedures which allow a business to run successfully.
This will help to avoid confusion in an emergency and make it easier for all team members to understand how the situation will affect the company’s operations.
At the very least, all business continuity plans should also define the following information:
- Relevant roles and responsibilities in a crisis (e.g. incident commander)
- Locations of the emergency operations centre and evacuation routes and exits
- How communications will be carried out internally and externally in a crisis
- Protective measures for data, facilities and equipment
- How damages and loss will be limited and remediated
Creating this document or package won’t be enough alone, though.
Businesses need to ensure the information is clear, updated frequently to cover new threats and is rigorously communicated throughout the entire workforce via regular staff training.
Testing the effectiveness of your business continuity plan is a must, too – it will tell you whether your employees know how to safely evacuate the premises, if your backup systems can hold out against a cyber attack or how quickly operations will resume following a crisis.
Enhancing your financial resilience
Nearly 1 in 5 SMEs stopped purchasing business interruption insurance in the past year, a statistic which is even more alarming when you consider that business insolvencies rose by more than half in the UK in 2022.
Speaking in an article for Insurance Times, the risk director of Allianz Trade UK and Ireland, Andy Hodson, said this rise could jump again by 15% in 2023 and called for collaboration between brokers, underwriters and their clients to mitigate risks.
In our unpredictable economic climate, ridding your business of its main financial security net will only heighten the probability of losses and/or closure down the line.
“A robust business continuity plan is essential, but it must run alongside business interruption insurance which helps to financially protect companies in the event of a serious incident,” said Angela Irvine, sales director of Birmingham-based specialist insurance broker, The Bletchley Group.
Usually covering damages or loss of a premises or facilities from flooding, storms or fires, this type of insurance is most frequently offered on a 12, 24 or 36-month contract.
Depending upon your broker or insurer, other policies which protect your business against other forms of disruption can be made available.
Companies in high-risk industries like construction in particular should have an adequate business interruption policy in place; tightening regulations, material costs and labour shortages continue to pressurise this sector, with the latter risk impacting 25% of UK businesses.
When creating or revising your business continuity plan, it’s important to ascertain the maximum cover provided by your existing insurance policy and if there is room for improvement.
Chances are there will be – the Chartered Institute of Loss Adjusters estimated that nearly half of business interruption policies were underinsured in 2022.
Monitoring what your policy covers will also ensure you’re only paying for what you need.
“It is important to regularly review the business interruption requirements of any business to make sure the cover remains adequate and that the appropriate cover extensions are in place,” said Angela.
“Asking yourself whether you need to cover certain locations or suppliers can help to keep your insurance up to date.”
This article was featured by the National Federation of Builders.