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Embedding the culture and systems of organizational resilience

Risk Management & Insurance: What Business Continuity Professionals Need to Know

Business insurance concepts can be intimidating to continuity planning professionals whose responsibilities are primarily focused on mitigation, response and recovery efforts rather than risk transfer. The natural tendency for a BCP practitioner unfamiliar with insurance terminology and/or contractual language might be avoidance. However, risk transfer via insurance, can be an important mechanism for funding response and mitigation efforts. The BCP practitioner has much to bring to the table and should be engaged in insurance purchasing decisions which ultimately could impact the success of response and recovery efforts. The Insurance Contract and the BCP practitioner An insurance policy is a contract between the insurance carrier and the policyholder in which the carrier makes a promise to pay for covered losses given a certain set of circumstances. The policy terms and conditions determine what events are covered, and to what extent, so it is essential to analyze adequacy of coverage, prior to a loss event. The BCP practitioner has unique insight into the organization's vulnerabilities both from a cause of loss and a business impact perspective. His or her insight can be valuable in policy construction discussions and insurance buying decisions. A customized insurance policy uniquely crafted around an organizations unique risk profile will likely respond as effectively after a loss event as would a continuity plan that compensates for gaps in coverage. Unfortunately, in many organizations the tasks of continuity planning and insurance purchasing are separate and independent. Insurance policy construction is largely an exercise of "what-ifs?" and the BCP professional is uniquely suited for this exercise, and a quick way for a BCP professional to get up to speed on an insurance program is to consider the "what if" factors during continuity planning activities. Ask the organization's insurance buyer and/or agent to explain how the policies will respond to circumstances contemplated in business impact analysis ("BIA"). It is important to understand which causes of loss events can trigger, exclude, or limit coverage in an insurance contract. A cause of loss that concerns the BCP professional and is not covered by the organization's insurance program should raise questions. A gap isn't necessarily a bad thing if it is a carefully considered choice. The choice to retain risk caused by a coverage gap should be analyzed, and understood, to confirm that the exposure is within the organizations' tolerance level. Coverage (or lack of coverage) surprises after a loss event can be financially disastrous. One possible inconsistency between an organization's continuity plans and provisions of the policy is the issue of paying employees during a business interruption related to a covered loss. When buying a policy, the employer has the choice of insuring for the continued employment of the affected employees during the business operations interruption, or not. For example, press operators may not be needed if presses are not functional during the interruption. Declining purchase of business interruption coverage with plans of temporarily laying off operators following an accident may be an option to limit insurance costs. The BIA however might identify operator skills as critical to ongoing operations and difficult to replace. Response plans could contemplate continued employment as means to protect critical skill. Policy

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