How Insurance Can Be Used to Protect Your Company from Regulatory Disruption

According to the 2018 Allianz Risk Barometer, the #1 threat to companies worldwide is Business Interruption (in the US, cyber is #1 and Business Interruption is #2).  What is Business Interruption? Business Interruption occurs when a business suffers a loss to its premise that causes a suspension or slowdown of its operations.  This loss of income would only be covered by property insurance if the damage was caused by a “covered” peril (think wind and fire or natural hazards), but not all interruptions to your business are covered by a traditional insurance policy. Have you heard the term NDBI (Non-Physical Damage Business Interruption)? If not, you are not alone. Let me explain.

If your business or one of your key suppliers is forced to suspend operations by a regulator – how would that affect you?  What is more likely: A key supplier being shut down by a regulator or the key supplier being shut down by a covered peril?  Most likely it is the former.   When I ask CFOs and Risk Managers how they are managing the regulatory risk, they basically tell me that they are keeping their fingers crossed and looking at putting in a dual sourcing plan.  Is hope a good strategy for an event that could decimate your business?  How long does it take and at what cost to put a dual sourcing plan in place?   As I said, most companies I speak with do not know there is an insurance policy available that can cover the loss of income due to regulatory action.  If you are a med device, biotech or pharma company you understand how a regulatory action to you or your supplier could cripple your business and that these shutdowns happen far more frequently then what a traditional property policy covers.  Wouldn’t it be nice to have a coverage that could protect your cash flow if this were to happen?  This is what an NDBI policy can provide.

The biggest risk to companies worldwide is Business Interruption, yet the vast majority of companies have never even been introduced to NDBI coverage. If you are only looking to insure your risk in the same way you always have, isn’t it time you ask yourself why?  Why aren’t you being introduced to new ways to transfer your risk?  Why are you bringing this coverage up to your broker and not the other way around?  What other coverages are available that might enable you to better protect your business?

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