In summer 2018, Stratford Shopping Centre in east London was forced to close its doors for several days as a result of flooding. It is reported that the flood resulted from a burst water main, leading to the closure of 50 stores.
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Businesses can take tangible steps to help them plan for the worst case scenario so that potential damage is reduced as far as physically possible, liabilities are minimised and the balance sheet is protected.

Disaster recovery plan

Statistics show that 43% of UK businesses struck by a disaster never reopen, 80% fail with 13 months and 54% never recoup the losses incurred. The key steps in creating a Business Continuity Plan are:

  • Business Impact Analysis (BIA) interviews; conducted with key staff members to understand the business and its vulnerabilities, dependencies and strengths.
  • Assessing the risks; A BIA summary will be created and discussed with the client Senior Management Team or nominated group to review and validate the key issues and risks that apply to the business.
  • Developing the strategy and Plan; a bespoke Business Continuity Plan will be drafted and agreed with the client Senior Management Team / nominated group to ensure it is realistic and suitable for use in a major incident. Dependent upon the occupation of the property in question, this could include, for example, having back-up offices which allows for tenants to continue their day-to-day services and so on ensuring that they do not go elsewhere long term.

As a result of the original damage, therefore, financial disruption is kept to an absolute minimum, thereby optimising continued creation of revenue.

Insuring Loss of Rental Income

While a disaster naturally leads to physical damage, it is often potential future income that leads to far larger financial loss. One way of mitigating this risk is insuring for any amounts, including service charges that are either paid or payable to you in connection with your business, i.e. Loss of Rent insurance. This in turn reduces potential loss of income as a result of any physical damage that has occurred owing to the disaster.

Further, within the Gallagher Specialty policy wording, extensions are included which account for further potential costs in the face of physical damage such as Loss of Attraction to the property; cost of re-letting a property in consequence of the damage (consider legal costs, for example), and Prevention of Access to name a few.

Subrogation from Third Parties for Business Interruption

Where liability lies with a third party such as a utility company in the case of Escape of Water or downtime in electricity, there is the opportunity for insurers to subrogate against them as the ultimate proximate cause has arisen owing to the third party. This in turn allows for a reduction in potential cost to you or insurers which would have an impact of the balance sheet either directly or indirectly through negative claims experience and therefore potential for higher future insurance premiums.

Subrogation therefore allows for ultimate financial justice – the true cause of the disaster is accounted for by the original accountable party, relieving you of any further potential costs.