AS the threat of storms and hurricanes intensifies, businesses are being urged to prioritise continuity planning and risk management.

Insurance experts stress that without the support of insurance, a business continuity plan is merely a hope rather than a solid strategy for survival and recovery.

“Insurance is pivotal to having a successful business continuity plan,” said managing director of General Accident Insurance Company, Sharon Donaldson-Levine during the Institute of Chartered Accountants of Jamaica 2024 business conference.

Addressing the impact of natural disasters, which Donaldson Levine refers to as “business interrupters”, she emphasises that businesses must recognise their vulnerability to weather-related challenges, including climate change. This awareness is essential for building resilience and reducing financial losses, as it serves as a key pillar of business continuity. While standard insurance policies typically cover physical damage to property and asset replacement costs, a business interruption policy offers crucial support during periods of operational downtime. Levine notes that after a catastrophe, businesses often face several months before they can resume normal operations. During this recovery period a business interruption policy provides the necessary funds to cover fixed costs, enabling business owners to continue paying staff and meeting other essential expenses.

“Forty per cent of businesses that have a major disaster do not reopen after the disaster. Further to that, where they do reopen, 25 per cent of them fail within a year,” added Carolyn Bell-Wisdom, partner at PwC. “Ninety per cent of small businesses fail within two years after having a disaster,” she said, while noting that the findings are not exclusive to Jamaica but, rather, is applicable globally.

Given the risks of business failure due to disasters, both experts recommend adopting a policy that also covers damages from cyber attacks and recent pandemic-related losses, which have had unexpected impacts on businesses.

“No one knew, no one expected it. Now, insurance policies expand to include pandemic coverage; lots of policies didn’t so it has just changed the scope of what we do,” said Donaldson-Levine.

However, she notes it’s important to understand that insurance is not meant to make the business better off financially than before an event or loss. Instead, insurance aims to restore you to your previous state, providing a safety net rather than a windfall.

“It is not total protection, [even] while it goes a long way to help in the recovery process and reduce any financial losses,” Donaldson-Levine made distinctively clear. “You will get a cash payout that will allow the entity to quickly mitigate its loss position.”

In discussing the benefits of insurance as a risk-mitigation tool for businesses, Denise Morgan, financial solutions manager at JMMB, highlights the importance of providing employee benefits.

“The first priority is to offer benefits for employees, especially to attract and retain top talent,” she explained in an interview with the Jamaica Observer.

Morgan explains that investing in employee benefits not only enhances job satisfaction but also strengthens the overall stability of the organisation. She further advises that business owners should prioritise obtaining personal insurance before focusing on business insurance. This is particularly relevant for those just starting out, especially if they need to secure loans. She explained that lenders often require insurance to guarantee the loan, with the business owner as the insured party. The beneficiaries are typically the business owner’s family, such as a spouse or children. However, Morgan points out that the right type of insurance depends on the business’ financial position and the costs involved.

“If you are just starting out, for example, you may have limited cash flow and existing responsibilities. Term insurance might be the best option because it provides coverage while keeping costs manageable,” she advises.

The flexibility of term insurance makes it an ideal option for those in the early stages of building their businesses, as it allows them to maintain coverage while navigating financial constraints.