Business Interruption Cover

The roof comes off in a hailstorm on a Tuesday. The building is insured, the stock is insured, and within a fortnight a contractor is on site. What nobody costed is the eleven weeks the doors stay shut while the repairs happen, the salaries that still go out, and the customers who quietly find somebody else. The property claim rebuilds the shop. It does not rebuild the trade.

What is business interruption cover?

Business interruption cover pays for the money a business stops making while it recovers from an insured event. It sits alongside the property section of a commercial policy rather than replacing it: the property section pays to fix the damage, and this section pays for the trading the damage cost you. Most policies are written around gross profit rather than turnover, and almost all of them depend on there being a valid property claim in the first place.

Key Takeaways

• Business interruption sits on top of a property claim. No insured damage usually means no interruption claim, however real the lost trade.
• Policies are generally written on gross profit, not turnover, because the costs that stop when trading stops are not costs you need replaced.
• The indemnity period is the number most businesses get wrong, and it is chosen when the policy is written, not when the claim happens.
• Insurers work from your financial records. Management accounts and past financial statements are what turn a claim into a number.
• Interruption can start somewhere other than your premises: a supplier, a customer, or an access road can all stop you trading.

What the policy actually pays for

The intuitive answer is lost turnover, and it is the wrong one. When a business stops trading, some costs stop with it. Stock is not bought, commissions are not earned, and delivery fuel is not burnt. Paying a business its full turnover would hand it money for costs it never had to carry. Cover is therefore usually written on gross profit, which is turnover less the costs that vary with it, leaving the overheads that carry on regardless. Rent falls due, salaried staff are paid, the finance house still expects its instalment. That gap is what the section exists to fill, and it is why the sum insured is a calculation rather than a guess. Set it from last year and grow twenty percent, and the shortfall lands on the business exactly when it can least absorb it.

The indemnity period: the number most businesses get wrong

The indemnity period is how long the policy keeps paying after the event. It is chosen when the policy is written, and most owners choose it optimistically. Three months feels generous while the building is standing. Then a specialist machine turns out to have a lead time measured in months, or the municipality takes its time with an approval, or the insurer and the contractor disagree about scope. The honest test is not how long the repairs take. It is how long until trading is back to where it would have been, which is usually longer, because customers who went elsewhere do not all come back the week you reopen. For most businesses twelve months is a starting point rather than a luxury, and anything involving imported plant or a specialised building deserves longer.

Proving the loss: what insurers ask for

This is the part that catches people, and the part worth preparing before anything happens. An interruption claim is an argument about what the business would have earned had the event not occurred, and that argument is made out of paperwork. Insurers generally work from management accounts, past annual financial statements, and anything that shows the trend of trading before the loss: order books, contracts in hand, the same month last year. A business with current, reconciled accounts can usually establish its position in weeks. A business reconstructing the year from bank statements and memory can spend months, and every month of that delay is a month the cash does not arrive. Keeping the accounts current is not an accounting chore in this context. It is claims preparation.

When the interruption starts somewhere else

Your premises can be untouched and your trading can still stop. A supplier who burns down, a key customer who cannot take delivery, a fire two doors away that closes the whole street, a utility failure that leaves you without power for a fortnight. Standard business interruption follows damage at your own premises, so these situations usually need extensions written in specifically: contingent business interruption for suppliers and customers, prevention of access for the closed street, public utilities for the power. None of them appear by default. Each one is a conversation about who your business actually depends on, which is a conversation worth having while things are calm rather than discovering the answer in a loss adjuster’s report.

Cyber, farming, and the interruptions that do not look like damage

A ransomware attack stops a business as effectively as a fire, but nothing is physically damaged, and a traditional policy generally responds to physical damage. Cyber cover carries its own interruption section for exactly that reason, and the two need to be read together so the gap between them is deliberate rather than accidental. Farming has the same shape and a different cause: a season is not a month, income arrives in one or two windows a year, and an event timed badly can cost a whole cycle rather than a few weeks of trading. Both are business interruption in substance. Neither is covered by assuming the standard wording stretches that far.

Closing Reflection

Business interruption is the section owners skim because it is abstract until the day it is not. Property damage is visible and easy to picture. Eleven weeks of no trading is a spreadsheet problem that only becomes real when the salaries go out against an empty till. The work that makes this cover pay properly is all done beforehand: an honest indemnity period, a sum insured that matches how the business trades now, extensions that follow the real dependencies, and accounts current enough to prove a loss quickly.

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