After any natural disaster, businesses don’t just face property damage; they also suffer economic damages from lost business. It can take a long time for businesses to resume operations after a natural disaster, and in the case of Hurricane Maria, many Puerto Rican businesses are still not operating. To help protect against these financial losses that come after natural disasters, many policyholders choose to purchase business interruption insurance.
What Is Business Interruption Insurance?
Business interruption insurance (also called business income insurance) is a type of insurance coverage that compensates the policyholder for the loss of income a business suffers after a disaster such as a fire, hailstorm, or hurricane. This coverage can cover income lost while the business was closed during a natural disaster and while the business is closed for rebuilding and repairing property damage from the disaster.
How Is Business Interruption Insurance Calculated?
When a policyholder files a business interruption claim, a thorough investigation should take place to properly calculate all of the losses endured by the business. The investigation will include an examination of financial statements such as a profit and loss report, along with the business’s history, and the number of employees, among other things. The insurance company will estimate the profits that would have been earned had the business been open based on the business’s history and other factors. The insurance company will then total and estimate the expenses a business regularly incurs, and the expenses the business incurs as a result of its closure such as moving to a temporary location. These totaled amounts should then be paid out to the policyholder to cover the entire financial loss due to the business’s closure.
Business Interruption Claims From Hurricane Maria Will Be Complex
Because Hurricane Maria destroyed the Puerto Rico’s electrical grid, downed most of the communication systems, and damaged many of the island’s highways, businesses were unable to rebuild and reopen for many months – some still remain inoperable. The losses from business interruption could be in the millions for insurance companies, and they will do everything in their power to limit claim payouts. Insurance companies often underestimate the cost of different expenses in order to help minimize claims.
Insurance companies have already faced extensive fines from the Commissioner of Insurance of Puerto Rico for unnecessarily delaying claims, but it is likely they will continue to drag their feet in paying out Hurricane Maria claims.