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Business interruption insurance

Why do you need business interruption insurance?

When disaster strikes, the cause is often outside of your control. A fire or flood not only can cause damage to your premises, but you may be forced to suspend operations altogether.

No one can predict what’s around the corner. And it can be difficult to judge the impact any incident can have on your business. Business interruption (BI) insurance helps to put your business back on track. BI can help with:

  • Loss of gross revenue and profit
    Cover can help with loss of income as well as paying on going rent, employee salaries and any other overheads while you’re unable to trade.
  • Increased cost of working
    What additional expenses could you be facing? You may need to rent other premises, or hire additional staff or equipment to keep your business running.
  • Recovery periods
    How long will it take your business to recover? Many get this very wrong and assume they will be up and running within months, but in reality it can take years.

How we can help

With experience of a variety of different industries, we can help you to assess the risks to your business and decide on an indemnity period.  We can arrange BI that will help you protect your business and put you back on track following a loss.

BI cover gives you and your business reassurance that you are covered if an insured event impacts your organisation. BI cover aims to maintain a business’s income even if it is unable to trade. It also helps a business to return to the same place it enjoyed prior to the incident. We can arrange cover that will help protect your business at a number of key stages:

Preparing for the worst

Unfortunately even if your business is unable to trade for a period of time, many of the usual expenses still need to be paid, from wages, to rates and rent. Even the most successful organisations take a major hit. And what might be a dent in profits for a multi-national could be fatal for an SME. BI insurance acts as your safety net.

Checking your sums insured

The sums insured is the amount you are insured for if an incident should occur. If the sum insured is miscalculated, your business could end up under insured. We can support you in identifying the correct amount you will need to enable business recovery, taking into consideration estimated gross profit or gross revenue as well as your future growth projections.

Checking your cover levels

We can help you get the right policy for your business. Most restaurants, for instance will probably have BI insurance but it is important to check exactly what is covered. In the event of a power failure many policies insert a ’24 hour’ franchise excess preventing the restaurant from claiming for the first day of interruption. This may not be adequate, as a power failure even for just a few hours it can prevent a lunchtime or evening service. We understand the risks that could impact your business and the time it will take for you to recover. Underestimating recovery times can leave your business out of pocket, or even put you out of business completely.

Frequently asked questions

Q
What is BI insurance?
A
BI insurance provides financial support in the event of a natural disaster, to replacing losses of profits and staff salaries. Essentially it’s designed to put the business in the same financial position as it was prior to the disaster.
Q
Who needs BI insurance?
A
If a large-scale disaster would affect your business’s ability to trade then you should think about arranging BI insurance.
Q
What are the top 10 causes of BI?
A
Top international causes of BI are: fire and explosion, storm, machinery breakdown, faulty design, material or manufacturing, strike, riot or vandalism, loss of a cast member (entertainment), flood, collapse, human error or operating error and power interruption.
Q
What type of interruptions does BI insurance cover?
A
Most policies will cover BI resulting from: damage caused to your premises by fire, storm or flooding and the breakdown of essential equipment. Some policies will also cover BI due to: people not being able to get into your premises; damage occurring at supplier or customer premises. Specialist policies sold separately are available to insure computers against viruses, hackers and other cyber risks. Take a look at our cyber liability insurance to read more.
Q
What is a BI indemnity period?
A
A business interruption indemnity period is the amount of time you are covered for following an incident. Here’s an example:

A reputable high street florist, sharing a property alongside other businesses with residential flats above, suffered a devastating fire. The fire left the building in need of significant repairs. A complex and extensive rebuild was required and all within a tightly controlled conservation area, meaning a lengthy reconstruction period.

After investigating the extent of the damage, it was evident that the rebuild would take up to 24 months. This time was required to allow for the complexities of planning the reinstatement program, resolving different ownership rights and the number of insurers involved. Thankfully, the florist had business interruption cover for a maximum of 24 months. When purchasing business interruption cover you need to consider the worst possible scenario and how long it would take you to recover and ensure your indemnity period is adequate.
Q
Does my business insurance policy include BI?
A
No. A buildings and contents policy will not compensate for loss of income following a disaster at your business. This type of policy does not allow for financial loss as a result of damage.
Q
I work on sites, not at an office; do I still need BI insurance?
A
If you are a contractor and work on site, away from your office, you might think that if an incident occurred at your premises, business would carry on as normal on site. Therefore, there is no need for business interruption insurance. However, in the event of a major incident such as a fire at the contractors’ office, there could be a significant interruption to the business. Recovery could involve dramatically increased costs and time to reinstate equipment and documents reducing in your profit/revenue.
Q
How do I calculate my sum insured?
A

Your sum insured is the amount you wish to be insured for. To set a realistic sum insured amount, you should consider:

  • The number of years it would take to recover from a “worst-case” scenario loss such as a fire. There are many factors to consider including the time it would take to reinstate your premises and recover potential lost customers.
  • Your estimated gross profit or gross revenue for that number of years. Your broker can provide support to ensure cover is on the correct basis. You consider future growth. It is possible a loss could occur at the end of your insurance period.