Manufacturing ยท business interruption
Business Interruption Insurance for Manufacturers
A fire policy rebuilds the shed. It does not pay for the eleven months the shed is not producing. For a manufacturer, that second number is usually the larger one, and it is the one most often left uninsured or badly estimated.
Key takeaways
- BI is written on gross profit, which in insurance means turnover less the costs that genuinely stop when production stops. It is not the accountant's gross profit, and using the accounting figure understates the sum insured.
- The indemnity period must cover the time to rebuild, re-commission, re-qualify with customers and get back to prior trading. For plants with imported plant or long lead times, twelve months is often not enough.
- The material damage proviso means BI only responds if the underlying damage claim is admitted. An underinsured fire policy can therefore void the BI claim behind it.
- Increased Cost of Working funds the temporary measures that keep customers supplied while you rebuild, which is frequently what saves the business relationship.
Why the indemnity period is the number that matters
Most manufacturers pick twelve months because it is the default on the proposal form. The honest test is different: from the morning after a total loss, how long until you are trading as before. That includes debris removal, statutory approvals, ordering plant that may be imported, installation, commissioning, trial runs and customer re-qualification.
For a plant with specialised imported machinery, the realistic answer is frequently eighteen to thirty-six months. A twelve-month indemnity period on a twenty-four-month recovery means the policy stops paying while you are still not producing.
The material damage proviso, and how it bites
BI is not a standalone cover. It sits behind the property policy and responds only when that claim is admitted. If the fire policy is underinsured, average applies, the settlement is reduced, and the BI claim behind it is exposed to the same problem.
This is why we review the two together. Insuring the building well and the income badly, or the reverse, produces the same outcome at claim time.
Supplier and customer extensions
A plant can be undamaged and still stop, because a sole supplier burned down or a key customer did. Contingent BI extensions cover that, and they are rated on named dependencies, so the exercise starts with knowing which single points of failure you actually have.
Frequently asked questions
How is the BI sum insured calculated?
Turnover less purely variable costs, projected forward across the indemnity period, not backwards from last year's accounts. A growing plant that insures on last year's figure is underinsured from day one.
Does BI cover a shutdown with no physical damage?
Standard BI does not. It needs an insured material damage event as the trigger. Non-damage interruption is a separate and much more limited market.
What is Increased Cost of Working?
The extra money spent to keep trading during recovery -- renting alternative premises, outsourcing production, expediting replacement plant. It is capped by reference to the loss it avoids.
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