Scott Williams, director at Clarke Williams Ltd, discusses the risks associated with third-party connection services and what can happen if they let you down
In today’s digital landscape, businesses in the retail and hospitality sectors heavily depend on technology for their day-to-day operations. From online booking systems to payment terminals, uninterrupted connectivity is crucial. But what happens when a third-party service—like your internet provider—suddenly goes down, causing a significant disruption to your business?
Business interruption from third-party services: The role of cyber insurance
Many businesses underestimate the financial risks associated with the sudden failure of essential third-party services. A temporary loss of internet access might seem minor, but for a restaurant or retail shop, it can lead to substantial losses. With most businesses operating on a cashless basis and the trend toward digital payments, the impact can be even more significant. In 2023, debit cards accounted for 51% of all payments made in the UK, making them the most popular payment method. As cash payments continue to decline, reliance on uninterrupted digital payment systems becomes even more critical.
This is where cyber and data insurance, particularly Dependent Business Interruption (DBI) coverage, becomes vital. DBI insurance protects your business from the financial fallout of third-party service failures, covering loss of profits and additional costs incurred during the downtime.
How dependent business interruption coverage works:
- If your business relies on third-party services like internet connectivity, and their systems fail, causing your operations to halt, DBI coverage can provide financial relief.
- Unlike many standard policies, which may not cover non-physical interruptions, our cyber insurance policies are designed to cover losses from system failures, including something as seemingly simple as an internet outage.
Package policies and public supply failures
In some cases, businesses may have package insurance policies that include extensions for the Accidental Failure of Public Supply. These extensions can cover interruptions in essential services such as electricity, water, gas, and telecommunications, including terminal ends like your internet connection. However, the extent of this coverage often hinges on the cause of the outage.
Important Considerations:
- Coverage under these extensions typically depends on whether the loss of connection is due to an Insured Peril—such as fire, storm, or another event that causes physical damage to the insured’s premises.
- For example, if a storm damages your building, leading to a loss of internet connectivity, a package policy might cover the loss of income resulting from that interruption. However, if the internet goes down without a related physical cause, this coverage might not apply.
A real-world example
Imagine a restaurant experiencing an area-wide internet outage that disrupts its ability to take orders or process payments. While traditional business interruption insurance may not cover the resulting loss of income (since no physical damage occurred), our cyber insurance with DBI coverage would. It provides the financial support needed to cover lost profits and increased operational costs during the downtime.
Why this matters for retail and hospitality businesses
In the fast-paced world of retail and hospitality, even a brief service interruption can have a significant impact on your business. With the growing reliance on digital payments, ensuring you have the right insurance coverage—whether through cyber insurance with DBI or a comprehensive package policy with public supply failure extensions—can make all the difference in maintaining business continuity and minimising financial losses.
Don’t leave your business exposed. Consider adding or reviewing your coverage to include protections against interruptions from third-party services, ensuring you’re prepared for the unexpected.
