Business Interruption Insurance – know the answers before you are forced to ask the questions

What is business interruption insurance?

If you are faced with the misfortune of a fire or flood business interruption insurance (BI) will cover you for the loss of income your business would have received if the incident had not happened.It aims to put your business back in the same trading position it was in before the event happened. BI insurance can be the difference between ensuring a future for your business and closing down.

Who needs BI?

Business interruption insurance is not a legal requirement. It is up to you, the business owner to assess the risks, and consider whether a large scale disaster would affect your business’s ability to trade. If the answer is no, then it is possible you may not need a BI policy. However, if the answer is yes, then it’s likely that your business needs protecting with business interruption insurance. Consult your broker for advice, there may be events you hadn’t considered that could disrupt your business.For example, in the event of a flood, a sole trader who uses a laptop and an internet connection to work may find it relatively easy to source a replacement laptop and temporary premises, though they may lose key data. However, a factory which holds stock and equipment, or a business which houses 1000 office staff with no remote working facilities would not recover so easily if its property or physical assets were damaged or destroyed.

I work on sites, not at an office, do I still need BI?

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 causing a reduction in your profit/revenue.

What type of interruptions does BI cover?

Most policies will cover BI resulting from:

  • damage caused to your premises or equipment by fire, storm or flooding
  • the breakdown of essential equipment

Some policies will also cover BI due to:

  • people not being able to get into your business premises
  • damage occurring at the premises of a supplier or customer

Specialist policies, which are sold separately, are also available to insure your business’s computers against viruses, hackers and other cyber risks which can disrupt a companies’ ability to function.

What are the top ten causes of BI?

Top international causes of business interruption are:

1. Fire and explosion
2. Storm
3. Machinery breakdown
4. Faulty design/material/manufacturing
5. Strike/riot/vandalism
6. Loss of a cast member (entertainment)
7. Flood
8. Collapse
9. Human error/operating error
10. Power interruption

These incidents are responsible for over 90% of business interruption losses.1

What is a BI indemnity period? Does it matter?

A BI insurance indemnity period is the length of time your business’ earnings are covered under the terms of the insurance policy. The ‘maximum indemnity period’ is the period of time (usually 12, 24 or 36 months) that the insurer will cover interruption losses for, starting from the date of the claim incident.

When selecting an indemnity period, it is important to consider the maximum amount of time it would take for your business to be able to fully recover. Take into account how long it could take to rebuild damaged buildings, and replace lost stock and equipment. If you are unsure, it may be best to opt for a longer indemnity period than you might think you need. It would be better to have too long to recover than not long enough. Discuss your concerns with your broker who will be able to offer advice.

I have business insurance, doesn't that include BI?

You might have a number of insurance policies for your business. However, you would be mistaken to think that cover such as buildings and contents, will compensate for loss of income following a disaster at your business. These policies do not allow for financial loss as a result of the initial damage sustained.

Business interruption insurance can be offered as an optional extra to business insurance packages which combines a number of different policies under one premium.

What should my first steps be if my business suffers an interruption?

When a substantial interruption to your business occurs, you need to assess the incident; safety should be your first priority.

  • If there is a fire, have all employees been evacuated? If there is an escape of water, can you safely turn off any vulnerable electrical items? In both instances, you may need to contact the emergency services. If you deem there is no need for emergency services and the incident is ongoing, is there anything you can do to stop further damage? For example, turning off the buildings water supply.
  • Contact your insurer as soon as possible and resist cleaning up any damage. If you have no choice but to remove damaged items; take photographs before you do so and keep the items as evidence of the damage to your business. Your insurer may want to send out loss adjusters to assess the incident.
  • Utilise your business continuity plan. It contains key steps and information that could be vital to your businesses ability to recover and will help you focus on the next steps.