In last week’s blog, we discussed why you should invest in a business continuity (BC) program. One point we made was that insurance against loss is typically not enough, so the additional value provided by a business continuity plan and program are needed. It’s important to know the differences between business continuity and insurance, and why insurance should be a part, but not the entirety of your business continuity plan.
Before we consider the differences, it is relevant to understand that business continuity is a form of insurance. The insurance we are comparing BC to is a contract of coverage where a party agrees to indemnify or reimburse another party for a defined loss under specific and defined conditions.
The logic that BC is not needed because you have insurance is like a saying passengers don’t need seat belts or that you don’t need backup assist because you have liability insurance. Without a business continuity plan, you will have to identify any recovery actions and procedures ad hoc. This means you’re more likely to miss important steps, overlook risks, and increase the impact of loss. Insurance coverage without a BC plan implies that your BC strategy is to hope an event does not occur. If an event does occur, you hope you can somehow figure out how to keep functioning or recover before the impact is so great that the business is not sustainable. Imagine yourself in an emergency: would you rather have a plan or have to figure it out as you go? As we often say at MHA: “Hope is not a strategy.”
Insurance makes it easier. Insurance may allow you to have plans and strategies that are less complex or costly. Why? Depending on your risk and likelihood of occurrence, some costs or losses will be covered. This determination is a part of the risk analysis and a component of the strategy. On the other hand, the presence of a business continuity plan may result in a decrease in costs related to insurance premiums, providing real cost savings.
A well-structured insurance policy will help mitigate some of the financial loss in a disaster or emergency, but you cannot expect it to protect you from all eventualities. These include loss of reputation or long-term losses due you organization’s inability to recover or effectively perform in a timely fashion. In today’s “me first” environment, customers and vendors aren’t as understanding as you may think. Customers will simply wonder why your organization was not prepared.
“The Difference Between Business Continuity and Insurance” is part of our Business Continuity 101 series. We created the series for those new to BCM and those looking to improve their knowledge of the fundamentals of business continuity best practices. If you’re not sure where to start when it comes to BCM, we created this series for you. Read the previous post in the series: Why Organizations Invest in Business Continuity.