Buying adequate insurance coverage is a fundamental step in ensuring the success of a business enterprise. Today’s entrepreneur must understand that the purchase of insurance is never a substitute for a risk management plan that will help the business maintain its daily operations after a catastrophic event.
Chip Merlin noted in his blog post, Anticipating Manmade and Natural Disaster Trends That Impact Businesses, that
Disasters are occurring with greater frequency with widespread financial impact; this is inevitable as the world’s population has increased and global trade is more frequent. Even when disasters occur far away or last for a relatively short period of time, we live in a globally interdependent society and are likely affected.
Wikipedia defines business continuity planning (BCP) as "the creation and validation of a practiced logistical plan for how an organization will recover and restore partially or completely interrupted critical (urgent) functions within a predetermined time after a disaster or extended disruption."
Note the following scenario posted on the Business Insurance website:
Many Japanese companies moved production to Thailand or found alternative component suppliers in Thailand after March’s devastating earthquake and tsunami, RPC said Wednesday in a statement.
The move helped many companies mitigate their losses in the Japan disaster, but many face further losses as a result of flooding in Thailand this fall, RPC noted.
“The problem for insurers who provide business interruption cover to Japanese manufacturers is that they have to cover the losses stemming from the Thai flooding because so many businesses moved some or all of their supply chain there,” said Daniel Saville, legal director in the reinsurance and corporate insurance department of RPC.
“Moving production from Japan to Thailand was ‘Plan B.’ The question now is whether those businesses have a ‘Plan C,’” he said in a statement.
“An additional factor in business interruption claims, especially those arising from electronics manufacturers, is that production may have been scaled up to deliver goods to the Christmas market,” said Victoria Sherratt, a partner at RPC. “Losses in those cases could be even higher,” she noted.
Are businesses required to also have a Plan C? Maybe. Certainly insurance companies will modify their products to draw the line somewhere and those who have too much to lose will likely keep going down the alphabet.