If a fire shut your premises for 3 months, your rent, payroll and supplier invoices would keep arriving on schedule. Business interruption insurance is there to cover that gap. Plenty of business owners assume they have it, though, and only find out at claim time what their policy does and doesn’t respond to. Here’s what the cover does, what sets it off and how to find out where you stand.<\/p>\n\n\n\n
Business interruption insurance can pay out when an unexpected event stops you trading as normal. It replaces income you’ve lost and covers the extra costs of keeping going while you recover. You may also see it called business continuity or business disruption cover.<\/p>\n\n\n\n
The usual trigger is physical damage to your property at a specified location, such as a fire, flood or electrical failure. Some policies reach a little further than that, which we’ll come to.<\/p>\n\n\n\n
The insurer may cover the shortfall in your profit, before tax, for as long as you can’t operate normally. It also pays the increased cost of working, such as extra accountancy fees or renting temporary premises while yours are repaired. Those extra costs are usually offset against what you’re paid for lost income.<\/p>\n\n\n\n
Three things set the size of a claim. The indemnity period is how long the policy keeps paying, commonly 12, 24 or 36 months, and it’s sensible to choose it based on the worst case such as rebuilding, replacing specialist equipment, retraining staff. The gross profit figure is what you declare when you take out the policy, and it caps what you can claim. Policy limits and sublimits then apply on top.<\/p>\n\n\n\n
Broadly, yes. The cover is built around profit rather than takings, so you’re compensated for the net income you would have earned plus the running costs that carry on while you’re shut. Payroll is the standard example, and fixed costs like rent fall into the same group. Some policies also add a 30-day extension after you reopen, since income takes a while to climb back. Your own wording decides exactly which costs are in, so check it line by line.<\/p>\n\n\n\n
Most policies respond to damage to your premises or equipment from a named cause such as fire, storm or flooding, and to the breakdown of essential equipment. You also need to experience loss of income, because the insurer only pays for a real loss.<\/p>\n\n\n\n
Some policies cover you when you can’t get into your premises even though nothing of yours is damaged, for example when police cordon off the area after an incident nearby. This is often called restricted access or non-damage cover. It’s usually an add-on and costs more.<\/p>\n\n\n\n
Each has its own answer, and none of them is a given.<\/p>\n\n\n\n
A cyberattack that locks your systems but leaves your buildings untouched may not trigger standard business interruption, because there’s no physical damage. Cyber insurance may provide cover for these risks, including losses like stolen funds, stolen data and damaged digital assets, along with liability claims. The scope of cover and exclusions vary by policy; some policies exclude cyber warfare and outages at critical infrastructure such as electricity or telecoms.<\/p>\n\n\n\n
Pandemics are often excluded or subject to specific limitations. Business interruption policies may contain exclusions for communicable diseases.<\/p>\n\n\n\n
Supplier shutdowns can be covered, but only if your policy includes a contingent business interruption extension. That typically responds when physical damage affects a direct supplier or customer, and sometimes suppliers further down the chain if you’ve named them. Expect a sublimit. A related extension covers damage to the utilities that supply you, usually with a waiting period of 24 or 48 hours before it pays.<\/p>\n\n\n\n
Generally, Business Interruption is embedded as part of a Property All Risk Policy, but confirm it rather than assume it. Some insurers build it into the property form, and others add it by endorsement.<\/p>\n\n\n\n
Pull out your policy schedule and look for a business interruption section. If it’s there, look at four things: the indemnity period, the gross profit figure, any extensions (supplier, utilities, restricted access) and the exclusions and waiting periods. Compare the indemnity period with how long it would realistically take to get fully back up and running, and the gross profit figure with what you expect to earn this year, growth included.<\/p>\n\n\n\n
Then put a real scenario to your broker. Ask what you’d receive if your main supplier’s warehouse burned down, or if flooding closed your road for a month. The answer shows you quickly where the gaps are.<\/p>\n\n\n\n
JENOA launched in 2020 as a digital-first reinsurance broker and risk management business. It’s an appointed representative of HWS Specialty, a Lloyd’s of London broker, and is backed by Abdul Latif Jameel, the family business founded in 1945. Alongside reinsurance, JENOA offers risk advisory, InsurTech and Shariah-compliant solutions for clients in the Middle East, North Africa and beyond. Products and services offered, however, may vary depending on jurisdictions.<\/p>\n\n\n\n