Business interruption insurance covers the loss of income a business suffers when an insured event stops or reduces its trading. Where property insurance pays to repair or replace physical damage, business interruption replaces the profit the business would have earned, and the ongoing costs it still has to pay, while it recovers. It is usually written alongside commercial property cover and responds only to causes the policy names.
The point of the cover is that the biggest cost of a fire, flood or other disaster is often not the physical damage itself but the weeks or months of lost trade while the business gets back on its feet. Business interruption is designed to bridge exactly that gap.
What does business interruption insurance cover?
Typically it covers lost gross profit, the ongoing fixed costs that continue despite the interruption such as wages and rent, and the increased costs of working needed to keep trading, for example renting temporary premises. Cover runs for an indemnity period, the length of time the policy will pay while the business recovers, which should be set long enough to reflect how long a full recovery would really take.
What triggers a business interruption claim?
Most policies respond only where there has been physical damage to the insured property from a covered peril, such as fire or flood, that then interrupts the business. Extensions can widen this to events like damage at a supplier’s or customer’s premises, denial of access due to an incident nearby, or, in some wordings, notifiable disease, though disease cover in particular varies sharply between policies.
Why does the wording matter so much?
Business interruption is one of the covers where two policies sold under the same name can respond completely differently. The FCA business interruption test case turned entirely on the precise wording of disease and prevention-of-access clauses. Reading the trigger, the indemnity period and the extensions before you need them is what avoids a nasty surprise at claim time.
How is the sum insured set?
The sum insured is based on gross profit as defined in the policy, projected over the indemnity period, not last year’s figure alone. Underinsurance is a common problem: if the sum insured or the indemnity period is too low, a claim can be scaled back or run out before the business has recovered. It should be reviewed as the business grows.
Getting the cover right
The indemnity period, the sum insured and the extensions all need to match how your business actually trades and recovers, and a broker can help set them realistically rather than guessing. To review your commercial cover, get a quote or speak to the team.