Business Interruption Insurance
Protect Your Business Income When the Unexpected Happens
A serious fire, flood or other insured incident can do more than damage your business premises. It can disrupt trading, reduce income and leave you facing ongoing expenses while your business recovers.
Business Interruption Insurance is designed to protect against certain financial losses following an insured interruption to your business operations.
At Edison Ives, we help UK businesses arrange Business Interruption Insurance with appropriate cover levels and indemnity periods, taking account of their individual circumstances.
What Is Business Interruption Insurance?
Business Interruption Insurance, sometimes referred to as Loss of Profits Insurance, provides financial protection when an insured event interrupts or interferes with normal business operations.
For example, a fire could damage a business premises, preventing the company from trading normally for several months.
While commercial property insurance may cover insured physical damage to buildings, contents or equipment, Business Interruption Insurance can cover qualifying losses of income and additional costs arising from the interruption.
Most traditional Business Interruption policies require an insured material damage event to trigger cover. Certain extensions may respond to other specified circumstances.
What Does Business Interruption Insurance Cover?
Depending on the insurer and policy wording, Business Interruption Insurance may provide protection for:
Loss of Gross Profit
Cover for qualifying reductions in gross profit caused by an insured interruption to business activities.
Loss of Revenue
Some policies provide cover on a gross revenue basis, depending on the nature of the business and the basis of insurance selected.
Increased Cost of Working
Additional expenditure reasonably incurred to help maintain or restore business operations, subject to the policy’s conditions and economic limits.
Temporary Premises
Qualifying costs associated with operating from alternative premises following an insured incident may be covered.
Continuing Business Expenses
Protection for certain ongoing business costs that continue despite a reduction in turnover, reflected in the insured basis and claim calculation.
Additional Extensions
Depending on the policy, extensions may be available for specified interruptions involving suppliers, customers, utilities or denial of access.
Important: Cover is subject to the insured events, limits, exclusions, definitions and conditions in the policy wording.
How Does Business Interruption Insurance Work?
Imagine a manufacturing business suffers a serious fire that damages essential production machinery.
Although the damaged equipment may be insured under its commercial property policy, the business could face months of reduced production while repairs are completed and replacement machinery is sourced.
During that period, the business may continue to incur costs such as wages, rent and other overheads while generating less income.
Where the policy responds, Business Interruption Insurance can help compensate for qualifying financial losses during the period of interruption, within the applicable indemnity period and policy limits.
This can be vital in helping a business recover and return to its previous trading position.
What Is a Business Interruption Indemnity Period?
The indemnity period is one of the most important considerations when arranging Business Interruption Insurance.
It is the maximum period for which an insurer will pay an insured Business Interruption loss, subject to the policy terms.
Common maximum indemnity periods include:
12 Months
May be suitable for some businesses with relatively straightforward operations and shorter anticipated recovery times.
18 Months
Provides a longer potential recovery period where rebuilding, replacement equipment or operational disruption could take additional time.
24 Months
Often worth considering where property repairs, planning requirements or replacement machinery could delay recovery.
36 Months or Longer
May be appropriate for more complex businesses or those facing significant rebuilding, specialist equipment or customer recovery challenges.
Remember: The business may not return to its previous income level as soon as the premises reopen. The time needed to rebuild turnover and regain customers should also be considered.
How Much Business Interruption Insurance Do I Need?
Choosing the correct sum insured is essential. Underinsurance can leave a business with a substantial financial shortfall following a major claim.
For policies insured on a gross profit basis, the definition of gross profit used by insurers is generally different from the gross profit shown in a company’s management accounts.
The insurance calculation normally starts with turnover and deducts only the specified uninsured working expenses defined by the policy.
The correct sum insured should reflect the anticipated insured gross profit over the relevant maximum indemnity period, including expected business growth and other adjustments.
For example, where the maximum indemnity period is 24 months, a sum insured based solely on one year’s gross profit may be inadequate.
Some policies offer alternative bases of cover, including declaration-linked arrangements. The appropriate calculation depends on the specific policy wording.
At Edison Ives, we can help you understand the information insurers require and highlight the importance of selecting an appropriate basis and level of cover.
Important Factors When Arranging Business Interruption Insurance
When reviewing your Business Interruption Insurance requirements, consider the following:
Recovery Timescales
How long would it take to repair or rebuild your premises and return to normal trading?
Replacement Machinery
Could specialist equipment take months to manufacture, import, install or commission?
Temporary Accommodation
Would your business need alternative premises to continue operating?
Staffing Costs
Which employees would need to be retained during the interruption, and what staffing expenses would continue?
Business Growth
Could turnover or gross profit increase during the period for which you are arranging cover?
Customer Retention
How long might it take to regain customers and return to your previous trading levels?
Supply Chain Dependencies
Could an incident at an important supplier or customer significantly affect your business?
Continuing Commitments
What rental, finance, contractual and other financial obligations would remain during a shutdown?
The Risk of Business Interruption Underinsurance
One of the biggest risks facing businesses is arranging insufficient Business Interruption cover.
This can happen when a business:
- Uses accounting gross profit rather than the policy’s insurance definition.
- Selects an indemnity period that is too short.
- Fails to allow for anticipated business growth.
- Underestimates the time needed to replace specialist machinery.
- Overlooks delays associated with planning permission, building works or supply chains.
- Assumes that reopening the premises means turnover will immediately return to normal.
Where an average or underinsurance condition applies, an inadequate sum insured may result in a proportionate reduction in the claim payment.
Reviewing sums insured and indemnity periods regularly is therefore important, particularly when your business changes or expands.
Business Interruption Insurance Extensions
Standard Business Interruption cover is often linked to insured physical damage at the business premises.
Depending on the insurer, additional extensions may be available for specific circumstances.
Suppliers & Customers
Specified cover may be available where insured damage at a supplier’s or customer’s premises disrupts your business.
Denial or Prevention of Access
Certain policies may respond where specified insured events prevent or hinder access to business premises.
Public Utilities
Extensions may be available for qualifying interruptions involving electricity, gas, water or other specified utility services.
Additional Increased Cost of Working
Some policies provide additional protection for qualifying expenditure beyond the standard economic increased cost of working provision.
These extensions are not automatically included in every policy and may have separate limits, conditions or exclusions.
Business Interruption Insurance for Different Industries
Different businesses face different interruption risks. We can help businesses across a range of industries explore suitable cover.
Manufacturing Businesses
Production delays, specialist machinery and supply chain dependencies can create lengthy recovery periods.
Retailers & Shops
Damage to premises can interrupt sales and affect customer relationships.
Restaurants, Pubs & Hospitality
Temporary closures can lead to lost trading income while rent, finance and other commitments continue.
Warehouses & Distribution
Loss of premises, stock-handling equipment or essential infrastructure can affect the movement of goods.
Professional Services
Office damage or loss of access to essential premises may affect a firm’s ability to deliver services.
Commercial Property Owners
Loss of rent insurance can provide relevant protection where insured damage affects rental income, subject to policy terms.
What Does Business Interruption Insurance Not Cover?
Business Interruption Insurance does not protect against every reason a business might experience reduced income.
Common limitations may include:
- Interruptions not caused by an insured event or covered extension.
- Losses extending beyond the maximum indemnity period.
- Losses exceeding the policy sum insured or applicable limit.
- Uninsured property damage or events excluded under the relevant material damage cover.
- Cyber incidents unless appropriate cyber-related interruption cover is arranged.
- Financial losses arising solely from reduced demand or general trading conditions.
All cover is subject to the individual insurer’s policy wording, exclusions, limits and conditions.
Why Choose Edison Ives?
Business Interruption Insurance requires careful consideration of your financial exposure and the time it could take to recover from a serious loss.
At Edison Ives, we take time to understand how your business operates and what could happen if trading were interrupted.
We can help you explore suitable insurance arrangements and explain important policy features, including indemnity periods, sums insured, extensions and exclusions.
Our approach is straightforward: provide practical advice, access appropriate insurance markets and support our clients throughout the insurance process.
Get a Business Interruption Insurance Quote
Make sure your business has considered the financial consequences of an unexpected interruption.
Speak to Edison Ives about your Business Interruption Insurance requirements and the protection available for your business.
Speak to Edison Ives
Call 0113 390 4646
Email info@edinsure.co.uk