Business Interruption Insurance: what is it and how does it work?

2 February 2022

Business Interruption Insurance: what is it and how does it work?

When you make an insurance claim on your buildings, stock, or contents, it would be great if everything was replaced immediately. However, this replacement can often take time.

So, what happens to your business whilst you’re waiting on planning permission? And who pays your employees' salaries whilst you’re waiting on a specialist bit of kit to be made to order? This is where Business Interruption Insurance comes in.

What is Business Interruption Insurance?

Business Interruption Insurance will cover your downturn in income from the date you have a material damage claim to the point at which your income is back up to regular levels.

There are 3 main types of Business Interruption Insurance:

  1. Loss of Gross Revenue – This insures your total turnover and is most suitable for businesses without many variable costs, such as those in the service industry.
     
  2. Loss of  Gross Profit – This insures the loss of net profit following a reduction in turnover, so is most suitable for businesses that won’t have to purchase new stock and material whilst operations are paused, such as those in the manufacturing and retail sectors.
     
  3. Increased Costs of Working – This simply covers additional expenditure which directly and solely mitigates a reduction in turnover. This is most suitable for businesses with very basic needs that are able to easily minimise the impact to their business. 

After a basis of cover has been picked and the amount to insure has been worked out, an ‘Indemnity Period’ is then selected. This is the length of time the insurer will pay you for, from the date you have a material damage claim to the point at which your income is back up to regular levels, so it’s very important to get this right.

Cover that suits your business

You can also buy various extensions to Business Interruption Insurance to tailor cover to your requirements. Here are just a few examples:

  • Specified Customers/Suppliers – If your business is heavily reliant on a single customer or supplier, you can insure your own loss of income if they suffer a material damage claim at their premises.
  • Computer & Machinery Breakdown  Whilst most Business Interruption cover flows from a ‘damage’ claim, you can optionally buy cover in the event of a mechanical breakdown where your business may be particularly reliant on IT hardware or machinery.
  • Cyber Business Interruption You can cover your ‘digital’ risks under a Cyber insurance policy which will cover the business if it is unable to trade following a data breach or cyber-attack, such as a ransomware infection. This is very important for businesses who rely on remote workers.

Why have Business Interruption Insurance?

  • It can save your business – Business Interruption Insurance is the first and last line of defence. Most are fortunate enough to never sustain a catastrophic loss, however, even small claims can lead to protracted business interruption.
  • It can save your staff – If you can’t trade, you can’t pay your staff. With Business Interruption Insurance, your employee’s salaries can be covered by the insurer.
  • It can save your customers – You work hard for your customers, and they expect the best from you. If you are left unable to operate following a claim, those customers will be forced to look elsewhere. You can use Business Interruption Insurance to outsource your work to other companies in order to avoid losing your customers. Should the worst happen, it will continue to pay your losses whilst you rebuild your customer-base.

How we can help

At Sutton Winson, we can help you navigate the complexity of arranging Business Interruption Insurance and ensure that it remains adequate over time, so you can rest easy knowing both your business and staff are protected in the event of a claim.

If you don’t have Business Interruption Insurance and are interested in finding out more, email us at enquiries@swib.co.uk or speak to your usual team.

Category: Commercial Insurance

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