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Business Insurance

Business Interruption

Cover for the gross profit a business stops earning while it rebuilds after an insured material damage loss. The fire policy pays for the shed; this pays for the months the shed is not producing. Written on a gross-profit basis with an indemnity period chosen to match how long the business would actually take to return to its prior trading position.

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Coverage at a Glance
Gross Profit Basis

Turnover lost less the costs that stop with it

Indemnity Period

Chosen to match real rebuild and recovery time

Increased Cost of Working

Extra spend to keep trading during recovery

Material Damage Proviso

Cover responds only if the damage claim is admitted

GrossProfit Basis
12-36Month Indemnity
ICOWIncluded
MDProviso Applies
Coverage

What business interruption cover actually pays

The fire policy rebuilds the shed. This answers for the months the shed is not producing, which is usually the larger loss.

Loss of gross profit
The turnover the business stops earning while it recovers, less the costs that stop with it. Gross profit for insurance is turnover less specified variable costs, and it is not the gross profit line in your published accounts.
Continuing fixed costs
Salaries, rent, interest, insurance and the other costs that carry on whether or not the plant is running. These are what turn a stoppage into a solvency problem rather than a bad quarter.
Increased cost of working
What you spend to keep trading: temporary premises, hired plant, outsourced production, overtime and expedited freight. Recoverable so far as it reduces the loss that would otherwise have been paid.
The indemnity period
The window the policy pays across, chosen by you. It runs from the damage until the business returns to its former trading position, not until the building is handed back.
The material damage proviso
Interruption cover attaches to a property policy and only responds where that policy has admitted the underlying damage. An uninsured peril on the fire policy is an uninsured stoppage here.
Suppliers and customers extensions
Damage at a named supplier's or customer's premises that interrupts you, added by extension. Worth having wherever a single plant supplies a critical input.
Advisory approach

The indemnity period is the number that gets set wrong

It is the item most often set too short, and the reason is that people cost the rebuild rather than the recovery. Twelve months is chosen because a shed takes about a year to put back up. But the loss does not end when the roof goes on: there is approval, procurement lead time on plant, commissioning, and then the work of winning back customers who went elsewhere while you were shut.

For a business with imported machinery on a long delivery, or one selling into contracts that are re-tendered annually, twelve months can be less than half of what is needed. We size the period against how the business would actually come back, and we would rather argue for a longer period at placement than explain a shortfall afterwards.

The second recurring error is the gross profit definition. Using the accounting figure rather than the insurance one understates the sum insured, and an understated sum insured on this cover is reduced proportionately in the same way an under-insured building is.

FAQ

Common Questions

No. In the Indian market it is written as an extension of the fire or property policy and cannot stand alone. It also only responds where the property policy has accepted the underlying damage, which is why the two have to be reviewed together rather than bought from different places.
Turnover less the specified variable costs that stop when production stops, such as raw material and carriage outward. It is deliberately different from the accounting definition, and using the accounting figure is the most common way a sum insured on this cover ends up too low.
Long enough to cover approval, procurement, rebuilding, commissioning and the recovery of trade. Twelve months is a default rather than an answer. Where plant is imported or customers are contracted annually, eighteen to thirty-six months is often closer to the truth.
Not in the standard form. A pure loss of demand, a customer cancelling, or a shutdown ordered without any physical damage falls outside it. Some of these can be added by extension, and each has to be asked for specifically rather than assumed.
Yes. If the sum insured is below the gross profit at risk for the indemnity period chosen, the claim is reduced in the same proportion, exactly as an under-insured building is. Reviewing the figure annually against actual accounts matters more here than on most covers.
Audited gross profit for the last two financial years and the projection for the current one, the indemnity period you want in months, and the fire or property policy this is to attach to.