Protection For All Of The Potential Business Losses Winter May Bring

November 4, 2019

Last winter’s storms and cold weather patterns resulted in over $3 billion in insured losses in United States, according to the Insurance Information Institute’s (III) study of 2018 natural catastrophes, and as of October 8th, there have been 10 weather related disaster events in 2019¹ so far. With the winter months just around the corner, it’s important for hospitality businesses to examine their insurance coverage in advance to ensure they are adequately protected.

Commercial property and casualty insurance policies almost always include “direct loss” insurance. In insurance policy language, “direct losses” refer to any damage immediately inflicted by a winter disaster, accident or other event, known in insurance language as “perils.” If a blizzard damages a roof, a direct loss would include damage to the structure, as well as to equipment, furniture, inventory or other items inside that could have been damaged as a result. Fire and smoke damage would count as a direct loss. So would theft, or a car crashing through the front window.

However, often times, “indirect losses” can be more damaging to a company, such as losing several months’ worth of income as a result of physical damage caused by a weather related event. Often referred to as “consequential losses” in business insurance policies, indirect losses are not inflicted by the peril itself but describe losses suffered as a result or consequence of the direct loss. Business interruption is one of the most common examples of an indirect loss. If the blizzard damages the roof of a storefront, not only are there the rebuilding costs, but the business cannot operate until the damage is fixed. Income lost during the rebuilding, as well as customers lost as a result of the down time, would represent an indirect loss.

This is why it’s critical to review insurance policies to understand they include indirect loss insurance and, if not, to secure business-interruption and additional types of necessary insurance coverage for your business, such as the following:

Contingent business income coverage: What if your business isn’t impacted by a storm, but a key supplier of your business goes down due to a storm and as a result your business can’t meet demand? Contingent business income coverage can bridge these gaps.
Flood coverage: It’s important to understand that most business property policies exclude flood coverage. In addition, businesses typically buy minimum flood coverage limits, but don’t consider that floods can come from even minor storms or no storm at all.
Cyber liability coverage: Beware of post-storm cyberattacks. Phishing and email scams that include malware are known to increase post-storm, when companies are more vulnerable to cyber intrusion and attack. Consider cyber liability coverage if you do not already have a policy in place.

Don’t forget to examine deductibles. What type of deductible do you have on property coverage – a percentage or flat deductible? If your business has a lot of locations, occurrence or percentage deductibles could potentially be more costly. Additionally, many policies will have lower deductibles for wind and hail events than for a named storm.