Discover the benefits of Business Interruption Insurance
Business Interruption insurance is a policy that will protect your business from loss of income following an unexpected event that results in a temporary disruption to your business. This could be a short-term closure or a reduction in operations as you recover from the incident. It covers the consequential financial losses that your business may sustain if operations are suspended, whilst you rebuild or relocate, and get back up and running again.
Arranging Business Interruption insurance will help to secure the future of your business in the face of a crisis by covering your ongoing operational costs. It helps to pay your bills, retain your staff and maintain your supplier and client relationships.
This complex insurance cover is often misunderstood, so we’ve broken it down into a series of questions and answers that highlight its benefits, and we hope, will help you to decide if it’s right for your business.
What is deemed as a business interruption?
Significant events such as fire and flood are the most common causes of Business Interruption. These events cause damage and destruction which prevent your business from operating for a period of time. An example might be a flood in your premises as the result of a burst pipe, or an electrical fire from a faulty socket that rips through your building.
In both scenarios you may need time to repair damage or have to find suitable alternative locations to carry out your business. New machinery or equipment may need to be purchased, and if it’s specialist, this could take months to arrive. Any stock that has been damaged will need to be replaced, at further cost and of course there’ll be an additional lead time.
These are damage related causes; we’ll look at non-damage causes a little later on.
Typical events covered by BI
- Supplier failure
- Restricted access to your property
If you’re not sure how these relate to real life instances, our examples below will help you to understand what qualifies as Business Interruption:
Loss of access due to a burst water main in the road at your premises may prevent access to your building or cause damage to it.
Consequential Interruption could arise due to an incident at a supplier’s warehouse, where the supply chain is disrupted and causes a knock-on effect to your business.
Fire in your building which affects your commercial unit, may require closure of the building for repair or relocation.
These instances are realistic events that could happen at any time to any business.
Doesn’t Buildings & Contents Insurance cover this?
Many people think that these costs will be covered by their buildings and contents insurance, but these policies usually just cover the loss of the physical items and not the consequential financial losses that you are likely to incur if your business has to temporarily close unexpectedly. The length of time that it takes to rebuild and repair your building or operations may take a long period of time, during which you may not be able to trade at full capacity, or at all. In a worst-case scenario, without Business Interruption cover in place, your revenue will drop, you may lose your staff, your suppliers and ultimately your customers.
Business Interruption insurance can be the perfect accompaniment to a buildings and contents policy for some organisations.
What financial losses does Business Interruption Insurance cover?
A Business Interruption policy will provide monies to cover financial losses as a direct result of a ‘policy stated’ business interruption. It will cover:
- Additional staff costs
- Loss of revenue
- Loss of rental income
- Any rental or mortgage fees
It will help you to buy more stock or move to an alternative site in the interim.
When you take out a policy, it’s important to be clear about what you will actually be covered for. A good broker will advise on what is best for you and will clearly explain what’s included and what is not. Some causes of claims against a Business Interruption policy can be from non-damage incidents. At the time you take out your policy you will have discussed the level and extent of business interruption cover you need and any non-damage related events that are to be included will be stated clearly. As will any exclusions.
What is non-damage Business Interruption?
Non-damage Business Interruption is an extension of cover that protects for loss of income where there hasn’t been physical damage to your premises, but other specified exposures that could disrupt your business operations.
These can include specific diseases, notifiable diseases, acts of terrorism, cyberattacks, government ordered closures or pandemics.
These non-damage causes can have a devastating effect on your business and its ability to operate, which has been highlighted by the Coronavirus pandemic.
We have seen a huge increase in the number of claims for non-damage business interruption in the wake of the pandemic, where there is currently a test case underway. Businesses are eligible to claim for Business Interruption if their policy specifies government ordered closures and notifiable diseases. You can find out more about this and how it is progressing on the FCA website.
Do you need Business Interruption insurance?
Well, if following a disaster, you only need a phone and a laptop and you’re good to go, then probably not, but if a disaster will affect your ability to trade, then it’s definitely worth the investment.
If you have a large premises with specialist equipment, large volumes of stock that are not quick to replace, or wouldn’t be able to set up your operation from another location straight away – we recommend you consider Business Interruption insurance cover.
How much Business Interruption cover will you need?
This will depend on your unique situation, and your ability to recover following the disaster. You need to make sure that you consider all the costs that you might need to cover, because if the financial losses are above your cover limit, you will need to meet the shortfall.
Think about what operating costs will need to be covered whilst repairs are underway. Factors that will impact your premium will be the number of staff you employ, temporary staff you might require, your exposure to risk, the size of your business and the extent of the coverage required.
As a specialist and independent commercial broker, we can help you to assess your needs by carrying out a full risk assessment together and creating an outline recovery plan. This will help you to understand the extent of the cover you will need in the event of a business interruption event.
The type of policy you need will depend on the type of business that you operate. Find out more about the three main cover categories that a Business Interruption insurance policy could be written on.
Things to remember
You won’t be covered for items that are broken as a result of the covered event or loss. These will be covered by a contents insurance policy. You also won’t be able to claim against undocumented income that’s not listed on your financial records.
The benefits in summary
By now you should have a good understanding of why it might be prudent to include Business Interruption insurance as part of your contingency plans.
If your business would have difficulty operating as normal following disaster or incident, for specific risks, whether damage or non-damage related, a Business Interruption policy will protect against the financial loss suffered as the result of claim. It covers the income that you would have received had the incident not occurred.
It provides you with breathing space to get everything back in order so you can function as if the event never happened.
Ultimately, a Business Interruption insurance policy may prove the difference between the long-term future of your business or going under.
We can help you arrange a comprehensive Business Interruption policy that will protect your business if an unexpected event means that you are unable to trade as usual. We’ll look at scenarios that may include relocation, more or temporary staff and income that would be affected, to make sure that the cover provided will be just what you need.
Get the right advice on the best Business Interruption plan for your business – call our expert advisers on 01480 272727 or send us an email at firstname.lastname@example.org and we’ll be in touch.