08/ 01/ 2004
by Bridget McCrea
Renee Borowy got the dreaded phone call on the evening of June 14, 2003. A vacuum cleaner left plugged in had sparked a fire in the walls of her company, VIP Salon & Spa Inc., in Riverview, Mich. Within two hours, her 4,000-square-foot, freestanding building was reduced to ashes. “We had just purchased that building and remodeled it in 2000,” says Borowy, president and CEO. “Suddenly, there was nothing left.”
But one thing was left: a business insurance policy she had since founding the company in 1986 that included both business interruption (also known as business income) and extra expense insurance. With it, Borowy rented temporary space from a nearby salon, paid her own salary and those of her four full-time employees, and covered her firm’s operating expenses during the five months and four days it took to rebuild.
“Never did I realize the value of business interruption insurance until we lost everything,” says Borowy. “Without it, we would have definitely gone bankrupt.”
Borowy got lucky, but many other small-business owners wouldn’t have if they had been struck with a similar tragedy. According to a survey from Seattle-based Safeco Insurance, 55 percent of small-business owners lack business interruption insurance and a full 63 percent aren’t even aware of it.
“Small-business owners are ill-prepared to recover payroll, expenses and profits when disaster strikes,” says David Strudthoff, Safeco’s director of premium audit services, adding that one in four companies will not reopen after an extended shutdown. “Business interruption provides them with an income stream that helps them stay profitable, and ensures that their companies are healthy when the time comes to reopen their main location.”
David Solomon, president of Amity Insurance Agency Inc., in North Quincy, Mass., says business owners should also consider extra expense coverage, which pays for any additional expenses to continue operations at another location. If, for example, a company’s roof collapses after a heavy thunderstorm, the business interruption policy covers income lost while the building is rebuilt, while an extra expense policy covers rent for a temporary office space while the building is being repaired.
Solomon says most office policies and business owner policies (commonly referred to as BOPs) include some level of business interruption coverage at little or no extra cost. The cost depends on the nature of the business and the length of coverage desired.
“Many small businesses do not purchase the coverage because of the perceived cost or the misconception that there’s little likelihood that they’ll ever be out of business for an extended period of time,” says Solomon.
But Borowy knows better, and advises all small-business owners to consider this critical component of their policies. “You’re talking about a nominal monthly fee in exchange for peace of mind and the knowledge that you’re covered if disaster strikes,” she says.
