Amid natural disasters and crises, businesses across the globe have taken a hit. Infinite number of situations threaten jeopardize business operations with far-reaching consequences. To mitigate risks, Business Continuity Management Systems (BCMS) crafts holistic plans to minimise the impact disruptions has on operations. With the rise of uncertainty, preventing shocks and reducing risks are of concern. Even if disaster strikes, businesses with BCMS can continue business as usual and bounce back stronger.
Similarly, using insurance can protect financial losses from the worst-case scenario. In contrast to in-house BCMS, insurance offers coverage by a third party to tide you over the worst periods. In particular, Business Interruption Insurance (BII) offers compensation for companies unable to operate due to disasters. This offers some breathing space for business operations to bounce back.
Is it necessary to have both BCMS and BII since most of the contract already have disclaimer on force Majeure clauses
With both long-term and short-term considerations, BCMS compliments BII from many perspectives.
- BCMS reduces risk, scale, and duration of losses, while insurance offers immediate income protection.
Good BCMS take months to plan and craft, while involving various departments across the organization means plans could take years to implement. These plans are well-rounded and considers the multiple perspectives for short and long-term recovery. BCMS is critical to contain high risks faced by specific industries, reducing disruptions and cutting losses. While immediate recovery plans would cut losses, complex situations might still lead to more serve impact to organisation.
This is where insurance comes in to offer immediate income protection and to cushion the financial losses. Due to high coverage, insurance is often for specific and limited periods. It has little effect with the recovery of operations as it is a tool for protection of income. This is when your BCMS comes to ensure resilience of business operations in the long-run. BCMS is also crucial to prevent the impact event has on your business from the onset.
- Good BCMS means premium savings for BII
Insurers prefer businesses with BCMS in place, as risks have already been contained. Practicing good BCMS assesses and prevents shocks, assuring insurers of better quality risk. The potential loss of profit is also clearer for insurers with a BCMS in place. The confidence of insurers also benefit businesses with suitable BCMS, as they get to enjoy lower insurance premiums.
While both insurance and BCMS serve to act as a safety net, they are not substitutes of each other. Rather, they are complimentary in nature. Insurance aids to beef up the effect BCMS has on the recovery of business operations. In turn, BCMS offers insurance premiums savings with high-quality risks. The intertwined relationship of BCMS and insurance will be further explored at our upcoming seminar on “From At-Risk to Resilient – Implementing an Effective BCMS with Insurance Profile” which will be held in Kuala Lumpur on 13 September 2022.
Written by: BCP Asia Consulting Team