How to prove a business interruption claim

The roof comes off in a hailstorm on a Tuesday, the property claim is accepted within a fortnight, and the owner assumes the hard part is over. Then the loss adjuster asks for twenty-four months of management accounts, the VAT returns, the payroll records and a list of every customer who stopped ordering. An interruption claim isn’t paid on what the business lost. It’s paid on what the business can prove it lost, and the proof sits in paperwork most owners last looked at when the auditor asked for it.

What do you have to prove in a business interruption claim?

To prove a business interruption claim, you show three things: an insured event caused damage which stopped or slowed trading, what the business would have earned had the event not happened, and the extra costs you carried to keep going. The insurer measures all three against your own financial records, inside the indemnity period and the sum insured on the schedule. If you want the basics of what this cover is and when it applies, start with our main guide to business interruption insurance.

Key Takeaways

• An interruption claim usually needs an accepted property claim behind it, or a specific extension, before the income loss is even measured.
• The loss is measured on gross profit as the policy defines it, which isn’t the same line as gross profit in your income statement.
• Current, reconciled management accounts decide how fast the claim settles and how much of it survives.
• Increased cost of working is paid only where the spending reduced the loss, so every invoice needs a reason attached.
• Claims are most often cut by underinsurance, an indemnity period which runs out, the time excess, undeclared savings and records the adjuster can’t check.

The records the insurer asks for

An interruption claim is an argument about what the business would have earned had the event not happened, and that argument is made out of paperwork. A loss adjuster typically asks for:

• management accounts for at least the twelve months before the loss, and often the twenty-four
• the last two or three sets of annual financial statements
• VAT returns and bank statements, which let the adjuster check your accounts against a record you didn’t prepare
• payroll records, to separate the wages of staff kept on from casual labour laid off
• order books, signed contracts, quotes in progress and the same months from the year before, to show the trend
• invoices and receipts for every extra cost spent to keep trading

A business with current, reconciled accounts can usually agree its position in weeks. A business rebuilding the year from bank statements and memory can spend months, and each month of delay is a month the cash doesn’t arrive. Keep a copy of the accounts off the premises or in the cloud, too. The fire which closes the shop is quite capable of taking the filing cabinet with it.

How the gross profit basis measures your loss

Most South African policies measure the loss on gross profit, and the policy’s definition is narrower than the one your accountant uses. Insurance gross profit is usually turnover less the costs which stop when trading stops, such as purchases of stock and packaging, and the wording lists which costs it treats as uninsured working expenses. What remains is the money which pays the overheads and the profit. The claim then works on the shortfall: the turnover you would have earned during the interruption, less what you did earn, multiplied by your rate of gross profit from the year before the loss. Most wordings allow an adjustment for trend, so a business growing steadily can claim the growth it was on track for, provided the accounts show it.

The sum insured sets the ceiling, and it also sets a trap. Many interruption sections carry an average clause, which means that if the gross profit you declared is lower than the true figure, the insurer pays the same proportion of your claim. Declare seventy per cent of the real number and you can expect around seventy per cent of a valid loss. The adjuster checks the declaration against the accounts early on, so the time to fix the figure is at renewal, with your accountant, rather than in the meeting where the shortfall is explained to you.

Standing charges: the costs which carry on

Some policies, and some SASRIA business interruption covers, are written on standing charges rather than gross profit, and many claims turn on them either way. Standing charges are the fixed costs which keep running while the doors are shut: rent, salaries for staff you keep on, insurance, loan instalments, security, the accountant’s fee. For each one you show two things: it was being paid before the loss, and it kept being paid during it. Lease agreements, debit order records, payroll runs and loan statements do this job. A cost the business stopped paying, such as casual labour or a cancelled cleaning contract, is a saving, and the adjuster deducts savings from the claim. List them yourself before the adjuster does. A list you prepared reads as cooperation, and a list the adjuster prepared reads as a finding.

In practice, that means preparing a schedule of every fixed cost, with recent invoices, contracts and payroll records attached, and marking which costs stopped, which reduced and which carried on. The clearer that schedule is, the fewer questions the adjuster needs to ask.

Increased cost of working: proving the extra spend

Increased cost of working is the extra money spent to keep trading, or to get back to normal faster: temporary premises, hired equipment, overtime, outsourcing part of production, extra courier runs. Most wordings pay it only up to the amount of lost gross profit the spending avoided, so the test is economic rather than emotional. Spending a large sum to save a small loss usually fails that test, however sensible it felt at two in the morning.

The proof is an invoice with a reason attached. For each cost, keep a note of what it was for, when the decision was made and what would have happened without it, and where you can, agree the spending with the loss adjuster before the money goes out. Some policies add a separate cover for additional increased cost of working, which pays spending above the economic limit up to its own sum insured. If yours does, the same paper trail applies.

Keep a simple log of each decision, the reason for it and the amount, because the adjuster will want to see why each cost was necessary.

Proving the indemnity period you need

The indemnity period is how long the policy keeps paying after the damage, and it’s chosen at renewal, long before anyone knows how bad the loss will be. At claim stage it becomes a question of evidence. The insurer pays for the reduced turnover within that window, counted from the date of the damage, and nothing after it closes. The proof for a long recovery comes from documents dated as the recovery happens: the contractor’s programme, the supplier’s written lead time on replacement machinery, the municipality’s letters on approvals, and month-by-month turnover showing customers drifting back. A file like that turns a disagreement about time into a disagreement about facts, and facts are easier to win.

Twelve months is a common default, and plenty of businesses find it was chosen the way a Wi-Fi password gets chosen: quickly, once, and never looked at again. The time excess at the start of the claim deserves the same attention, because the first hours or days of lost profit are yours.

Review both figures with your broker at every renewal, not only after a claim.

When the trigger sits outside your premises

Standard interruption cover usually depends on damage at your own premises, so a claim caused by something elsewhere rests on an extension, and each extension needs its own proof. Contingent business interruption needs evidence of damage at the supplier or customer, and of how much of your trade depends on them. Prevention of access needs the police, municipal or landlord notice which closed the road or the centre. A public utilities extension needs the supplier’s record of the outage and how long it lasted, measured against the wording’s own definition. None of these extensions appear by default, so the first piece of evidence is a schedule showing you bought one.

Suppliers, customers, utilities and access routes all sit outside your control, which is why these extensions need to be chosen deliberately. Start by listing the outside events that would stop your business trading, such as a key supplier's factory burning down, a road closure or a long power outage, then ask your broker which extensions respond to each one and at what limit. Keep the evidence you would need ready, such as supplier contracts and records of past outages.

How the loss adjuster builds the number

The loss adjuster is appointed and paid by the insurer, and the adjuster’s job is to measure the loss under the wording, not to make it as large as possible for you. That isn’t a complaint about adjusters, since many are fair and thorough, but it’s worth knowing whose report it is. A typical interruption claim runs in stages: notification, a site visit, a request for financial records, an agreed basis of calculation, interim payments while the indemnity period runs, and a final adjustment once the figures are in.

Ask about interim payments early, because a claim settled in month ten doesn’t pay the salaries in month two. Many businesses with a large claim appoint their own accountant, or a loss assessor, to prepare the figures and answer the adjuster’s questions. Check the policy before you do: some include claims preparation costs, and many don’t.

Whoever prepares the figures, keep them consistent with your management accounts, VAT returns and bank statements, and explain any unusual movements before the adjuster asks. A well-explained claim usually settles faster than a larger one with gaps.

Common reasons business interruption claims get cut

Most reductions trace back to a short list:

• The declared gross profit was too low, so the average clause reduced the whole claim in proportion.
• The indemnity period ended before turnover recovered, and the months after it fell to the business.
• A time excess swallowed most of a short closure.
• There was no accepted property claim behind the interruption, or the cause sat outside the premises with no extension to cover it.
• Savings weren’t declared, so the adjuster found them and deducted them.
• Figures couldn’t be checked against VAT returns or bank statements, and the unproven part fell away.
• A condition on the property side, such as late notification or an alarm warranty, wasn’t met, and the interruption claim fell with the property claim.

Most of these are decided long before the loss, at renewal, when the sum insured, the period and the extensions are chosen. The rest are decided in the month after it, by how well the paperwork arrives.

Review the sum insured, indemnity period and extensions with your broker every year, and keep your records claim-ready.

Review this with your broker at every renewal.

Building a claim the insurer can follow

An interruption claim is a reconstruction of a year which never happened, built from the year which did. Contractors fix the building. Accounts fix the claim: current, reconciled, stored somewhere the fire can’t reach, and read against a sum insured and an indemnity period chosen honestly at renewal. Owners who prepare this before the hailstorm tend to spend the recovery running the business rather than arguing about it.

Interruption cover is one section of the business insurance Mont Blanc arranges, and the pillar guide shows where it sits beside the property cover it depends on.

Mont Blanc Financial Services reads the interruption section with you before a loss, and works out the indemnity period and the sum insured against how your business trades. Talk to a broker about what your cover would carry, and what it would leave you carrying.

You shouldn't have to piece together a business interruption claim on your own while the business is trying to recover. With Mont Blanc Financial Services you won't.

Contact Mont Blanc Financial Services to have your business interruption cover, indemnity period and records reviewed before you need to claim.

The questions below are the ones business owners ask most often about proving a claim.

Frequently Asked Questions

Does business interruption insurance cover load shedding?

Not under the standard wording. Ordinary business interruption follows physical damage at your own premises, and a power cut on its own doesn’t damage anything you own. Cover for a utility failure comes through a separate public utilities extension, written into the policy specifically, and it doesn’t appear by default. Even then, the wording decides which kinds of outage count and how long one must last before the policy responds. If your trading stops when the power does, ask your broker to show you the utilities clause in your policy. Read it together before the next long outage, not after it.

Many policies exclude or limit outages caused by planned load reduction, and others only respond after the power has been off for a set number of hours. If load shedding is a real risk to your trading, ask your broker whether an extension is available, what it costs and what conditions apply.

Is business interruption based on turnover or gross profit?

Most policies are written on gross profit, not turnover. When a business stops trading, some costs stop with it: stock isn’t bought, commissions aren’t earned and delivery fuel isn’t burnt. Paying full turnover would hand the business money for costs it didn’t carry. Gross profit is turnover less those variable costs, which leaves the overheads that carry on regardless, such as rent, salaries and finance instalments. That’s why the sum insured is a calculation rather than a guess. Set it from last year’s figures and then grow twenty percent, and the shortfall lands on you.

Gross profit in an insurance policy is usually defined as turnover less the cost of goods or other variable costs, which is not always the same as the figure in your accounts. Ask your broker to check the definition in your wording and to help you calculate the sum insured from your latest figures.

What records do I need to prove a business interruption claim?

Expect to provide management accounts for at least the twelve months before the loss, the last two or three sets of annual financial statements, VAT returns and bank statements. The adjuster uses the VAT returns and bank statements to check the accounts against a record you didn’t prepare. Payroll records show which staff stayed on and which casual costs stopped. Order books, contracts and the same months from the previous year show the trend the business was on. For extra costs, keep every invoice with a note of why the money was spent. The most useful step is keeping the accounts current and reconciled before anything happens, with a copy stored off the premises or in the cloud. A claim built on tidy records can settle in weeks. One rebuilt from memory can take months, and the cash waits with it.

Why would an insurer reduce a business interruption claim?

The most common reason is underinsurance. If the gross profit you declared is lower than the true figure, the average clause reduces the claim in the same proportion. The second is the indemnity period: once it ends, the policy stops paying, even if turnover hasn’t recovered. A time excess removes the first hours or days of lost profit, which can swallow most of a short closure. Claims also shrink when the adjuster deducts savings, such as stock no longer bought or casual staff no longer paid, or when figures can’t be checked against VAT returns and bank statements. Finally, if there’s no accepted property claim behind the interruption, or the cause sat outside your premises without an extension, the claim may fail altogether. Most of these are settled at renewal, not after the loss.

Ask your broker to check these points each year.

Can I claim the extra costs of keeping my business running?

Usually yes, through increased cost of working, which pays reasonable extra spending to keep trading or to recover faster after an insured event. Temporary premises, equipment hire, overtime, outsourcing and extra transport can all qualify. The limit is economic: most wordings pay the extra cost only up to the amount of lost gross profit it avoided, so spending a large amount to save a small loss tends to be cut back to the smaller figure. Some policies add a separate cover for additional increased cost of working, which pays above that economic limit up to its own sum insured, so check your schedule. Either way, keep the invoice, a note of the reason and the date of the decision. Where you can, agree the spending with the loss adjuster before you commit to it.

Your broker can help with this.