IT consultants, yes you do need business interruption insurance

As an IT consultancy, you are prepared against cyber-attacks, not just on your business, but also on your clients’ businesses.

The recent global outage caused by a flawed update in a CrowdStrike file highlights an important distinction: business interruption insurance typically does not cover interruptions resulting from cyber incidents.

Instead, cover generally focuses on disruptions from physical damages or public utility outages, with specific conditions such as a 24-hour waiting period. For IT consultancies, while traditional business interruption insurance might not cover cyber-related issues, other forms of cover may address the impact of physical damage or service outages on both your operations and those of your clients.

This underscores the need for comprehensive risk management strategies to protect against various forms of business interruption.

What to consider

Business interruption insurance can be complicated, and calculating the right sum insured is not a straightforward process. Your insurance coverage must be reviewed regularly as your consultancy grows or as risks change. It’s an understatement to say that innovation in this sector is moving at a rapid speed. However, it’s exactly this pace of innovation that makes the risk environment so unpredictable and makes it so important to get professional advice from your insurer or insurance broker.

Scenario planning becomes vital in this process; to determine the necessary recovery time your consultancy would need should it encounter business interruption.  The “restoration period,” that can last up to 36 months, covers the time needed to repair or replace damaged property and resume operations.

It's important to note that insurers cover business income loss during the restoration and recovery period, meaning both operational costs and the fixed costs of the business, and this is why business interruption cover is so important. This period starts when the damage or downtime occurs, and ends when the consultancy is on the same level of income prior to when the claim occurred.

Additional strategies for risk prevention

Business interruption cover should integrate into a holistic approach to help protect your consultancy.  Insurance alone cannot cover market share or reputational losses. You need to develop a resilient disaster recovery plan for your consultancy.

Essentials of a Disaster Recovery Plan

A comprehensive disaster recovery plan should minimise losses, and that’s why it needs to include not only insurance cover, but also safety protocols and security measures.

Strategies include:

1.      Business continuity planning (BCP): Outline how your consultancy can continue operating during disruptions. Identify key functions, personnel, and alternative work arrangements. Regularly review and update this plan.

2.      Risk assessment: Identify your consultancy’s vulnerabilities. Assess potential risks, prioritise these based on impact and likelihood, and implement preventive measures.

3.      Supply chain diversification: Don’t rely on a single supplier. Diversify to build redundancy and maintain good relationships with multiple vendors. Review your contractual agreements. You can use these as a springboard for honest discussions to enhance your supplier relationships. Collaborate with established suppliers that have a solid reputation.

4.      Data backup and recovery: As an IT consultancy there is probably no need to remind you to regularly back up critical data and test data recovery procedures to ensure they work.

5.      Emergency communication plan: Establish clear communication channels to keep employees, and stakeholders informed during disruptions. As a consultant keeping your clients not only informed, but also feeling that they have contributed to the building of emergency plans, can go a long way in building reputation and trust.

6.      Employee training and awareness: Train employees about their roles during disruptions and conducts drills if necessary.

Proactive planning and adaptability are key to minimise the impact of interruptions in your consultancy. With robust business insurance cover, and a comprehensive disaster management plan, you should be well-prepared to survive disasters but emerge stronger and more resilient.

Now that you’ve learned about the options to protect your IT consultancy from business interruptions, why not let Auto&General insure it? We understand that you’re in the IT business, not in the insurance business. Our job is to educate you on insurance details and deliver the right solution at the right premium. Contact us today for a business insurance quote.  www.autogen.co.za

The information in this blog is for informational purposes only and does not constitute financial advice.