Business interruption insurance

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.

If a large-scale disaster would affect your business’s ability to trade then you should think about arranging BI insurance.

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.

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.

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.

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.

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.

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.