Do You Need Contingent Business Interruption Insurance?

Contingent Business Interruption occurs due to the loss of revenue, loss of materials, and loss of suppliers to a company or an organization. The cause of interruption may be due to the disasters like fire, earth quake, peril, tornado etc. which results in interruption of business at the premises of the supplier. The best example for such type of disaster could be the recent earthquake and tsunami in Japan which have interrupted the various business in U.S supplying the goods and services to Japan.

Contingent business interruption insurance also called supply chain insurance is a new type of business insurance designed to cover the risk of supply chain distribution disruption. It reimburses insureds for the lost profits, which are resulted from being able to supply or receive the insured’s goods to the third parties.

In simple words we can say that, contingent business interruption occurs when your supplier cannot operate and therefore is unable to conduct business normally because of your vendor's problems. Even if your company has not suffered any damage, but you have lost profits due to the unexpected disaster at the premises of your supplier, resulting in your business interruption.

For such situations, purchasing the contingent business insurance policy will help you to get paid for your lost profits and transfer risk of certain losses to the property of a third party. Because insurance companies might not cover earthquakes and floods in property insurance. So, buying a separate policy like contingent business interruption will provide you financial assistance during the times of disasters and this coverage is also provided during the period of restoration.