Business Interruption Valuation

What is Business Interruption Valuation?

Business interruption (BI) valuation helps organizations determine the value of the potential financial losses they are exposed to if unforeseen disruptions like natural disasters, supply chain disruption, property damage, political upheaval, or disease hit their operations. The valuation process helps companies prepare for such events, purchase appropriate levels of insurance coverage and take the necessary measures to manage the risk of these disruptions.

The BI valuation process involves developing an understanding of an organization’s BI risk profile and analyzing financial information to estimate the loss of income and additional expenses that might arise from a business interruption event. At Aon, our BI Valuation process uses an established methodology to calculate BI that can be used and adjusted annually.

Why is BI Valuation Important?

An organization’s value is reflected in its future cash flows, not necessarily its net assets, so the preservation of these cash flows is paramount. Business interruption losses can be significant and often have the ability to materially compromise an organization. As a result, the need to protect shareholder value and an increased focus on good corporate governance are leading more organizations to develop an auditable process that supports the determination of the correct type and amount of business interruption cover.

BI risk profiles will often vary across business segments and asset locations, so insuring on a one-size-fits-all basis can lead to over-insuring in one area of the business and underinsuring in another. Accurately quantifying BI values is critical for businesses as it provides the insight necessary to make informed decisions on the level of insurance coverage needed and the ability to tailor cover to efficiently protect against losses.

A BI valuation can provide insurers with a better understanding of an organization’s BI risk profile which may be able to be leveraged to negotiate better renewal terms, for example, more favorable premium levels, capacity and coverage limits.

The BI valuation process can also help companies identify areas where they can improve their risk management strategies and develop contingency plans to minimize the impact of business interruption events.

How Aon Can Help