What the industry calls Business Interruption or Loss of Profits Insurance, is actually cover your business needs to survive!

Independent research, commissioned by the British Insurance Brokers’ Association (BIBA), has revealed that millions of small and medium sized enterprises (SMEs) across the UK are failing to protect themselves and their employees in the event of emergencies such as fire, flood or an act of terrorism.

Government figures suggest nearly one in five businesses suffers a major disruption every year. Further research suggests 80% of businesses affected by a major incident close down within 18 months, and 90% of those who lose their data are forced to close down within two years.

Businesses must have a robust Business Continuity Plan linked with Business Interruption cover.

What is business interruption insurance?

Business interruption is a type of insurance that is designed to protect businesses against the financial loss suffered as the result of a property claim. Unlike buildings insurance, which only covers physical damage, business interruption exists to cover the income a business would have received had the incident not happened.

Who needs business interruption insurance?

There are a number of factors that determine whether or not a business requires business interruption insurance, but above all else it comes down to whether or not substantial damage inflicted on the physical assets of the business would affect its ability to trade for any sustained period of time.

For example, in the event of a flood, a sole trader who relies only on a laptop and an internet connection to work would have little trouble finding a replacement machine and a temporary premises from which to operate. However, at the other end of a scale, a large business that holds a lot of stock or equipment would be more exposed should its assets be damaged or destroyed.

Because business interruption insurance is not a legal requirement, the onus is on you.

What events does business interruption insurance cover?

The two most common causes of business interruption claims are fires and floods. Ultimately though, business interruption exists to protect businesses from any property related incident that affects its ability to trade, so other causes for a claim may include burst pipes, impact, storms, theft and vandalism.

What is the business interruption indemnity period?

The business interruption insurance indemnity period is the period during which business earnings are covered under the terms of the insurance policy. The indemnity period is the time that the insurer will cover business interruption losses following the damage.

When choosing an indemnity period, it is important to consider the maximum amount of time it would take for your business to be able to reach the level of profitability it would have been at, had the loss not occurred. It should not be calculated on the basis of the time you think it will take to get the business trading again.

Even when the business is back up and running orders may not reach the expected level instantly as your customers may have found other suppliers, and you may not get them back.

After major property damage it could take many months to rebuild and replace damaged equipment. To then expect to be back to normal profitability within a 12 month period would seem unrealistic so you should opt for 24 or 36 months cover.

The typical cost of 12 months cover within the total cost a business insurance package is less than 10% and extending cover to 24 months only takes this up to 13%.


For a chat about this or any of our other insurance services why not give us a call on  01494 450 450 or contact us here.