Will Business Continuity Planning reduce my insurance premiums?

Business Continuity Planning should be seen as an investment in the future of your business, but it can also help to reduce your costs.

The other day, I was asked if the cost of introducing business continuity planning would be offset by a reduction in insurance premiums. This was the answer that I gave.

Business Continuity Management is a holistic process that looks at the business in its entirety to identify and manage operational risks. It focusses on the critical business activities: i.e. the activities where disruption would have the greatest impact on revenue, reputation and/or regulatory compliance.

For those critical activities, potential sources of risk are identified and appropriate action taken to reduce the probablity of occurence and magnitude of impact. For those activities where the residual risk is still unacceptable, plans are prepared to enable business to continue at an acceptable level whilst the affected activity is recovered to its normal state.

Put simply, the objective of Business Continuity Planning is to make the day after a disruptive incident, as close as is reasonable, the same as the day before so that business impact is minimised.

Insurance is an example of a risk mitigation strategy where the risk is transferred to a third party: in this case the insurance company. Insurance premiums are usually set using actuarial calculations based on the probability that a claim will be made and the magnitude of that claim. The process of business continuity planning should identify opportunities to change both these variables and thus provide additional information that can be used when setting insurance premiums.

Transfer of risk is only one of several management strategies. Other strategies include modifying an activity to remove the risk; accepting the risk; and stopping the risky activity. The choice of strategy will be dictated by the probability of occurrence and magnitude of impact.

I hope this gives you some insight into how introducing business continuity planning into your organisation can have positive benefits: including the potential to reduce costs.

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