0800 002 5819 claims@claimrite.co.uk

Business interruption is a common issue that many businesses may face at some point. It refers to any unexpected event that disrupts normal business operations, resulting in a temporary or permanent halt in business activities. This can include natural disasters, fires, floods, cyber-attacks, and many other unforeseen circumstances.

When a business interruption occurs, it can have a significant impact on a company’s financial stability. This is where business interruption insurance comes into play. It is designed to help businesses recover from the financial losses they experience due to an interruption in their operations. However, filing a business interruption claim can be a complex and time-consuming process, which is why it is essential to understand the basics of what is involved.

In this article, we will go into the ins and outs of business interruption claims, including what they are, how they work, and what businesses can do to ensure they receive the compensation they are entitled to.

Understanding Business Interruption Insurance 

Business interruption insurance is a type of insurance that provides financial protection to businesses in the event of an interruption to their operations. This insurance can provide cover for a range of expenses, including lost income, operating expenses, and payroll. Business interruption insurance policies can vary depending on the type of business and the risks that it faces.

Business interruption cover is usually taken out as part of a wider property of business policy.

Business owners should carefully review their business insurance policies to ensure that they have adequate coverage. This can help protect their business in the event of an interruption to their operations, and ensure that they can recover from any financial losses that they may incur.

What is Business Interruption Insurance Cover

Business interruption cover is designed to provide financial protection to businesses following an unexpected event that results in a temporary halt to their operations. This type of coverage can help businesses cover a wide range of additional expenses incurred, including payroll, taxes, rent, and extra expenses incurred during the interruption period.

In most cases, business interruption coverage is triggered by physical damage or loss to the business premises caused by a covered peril, such as fire, flood, hurricane, lightning, or theft. However, some policies may also cover losses resulting from government or local authority orders, or other types of incidents.

Business interruption coverage typically provides reimbursement for lost revenue and continuing expenses during the period of interruption, up to the coverage limit specified in the policy. The amount of settlement is usually based on the business’s gross earnings or gross profit, as well as other factors such as loan payments, lease payments, and mortgage payments.

It’s important to note that business interruption coverage may exclude certain types of losses, such as those resulting from power outages, utility failures, or supplier disruptions. In addition, coverage may be limited by exclusions and sub-limits, so it’s important to carefully review the business interruption policy wording and terms and conditions.

Suppose a business is forced to temporarily relocate due to physical damage or loss to their premises. In that case, business interruption coverage may also reimburse the extra expenses incurred during the relocation period, such as rent, utilities, and employee payroll, otherwise known as Increased Cost Of Working.

What is the Business Interruption Indemnity Period?

A business interruption indemnity period, also known as a ‘period of restoration’, is a crucial component of business interruption insurance policies. The business interruption indemnity period is the time frame, typically stated in the insurance policy, during which the insurance company will cover the financial losses incurred by the business due to the triggering event. This period starts from the date of the event and extends until the business can reasonably be expected to resume its normal operations. The period is normally either 12 or 24 months.

The purpose of this period is to ensure that the insured business has enough time to recover and return to normal. It acknowledges that it may take some time to repair damaged facilities, replace equipment, restock inventory, and rebuild customer relationships.

The policy will specify a limit on the amount of coverage available during the indemnity period. It represents the maximum amount the insurance company will pay for covered losses within the defined time frame.

Claiming for Business Interruption

When a business is forced to temporarily halt its operations due to an unexpected event, such as a natural disaster, a pandemic, or property damage, it can suffer significant financial losses. Business interruption insurance is designed to provide financial protection to businesses in certain situations by covering the losses resulting from the interruption of their operations.

To claim for business interruption, the business must have a valid insurance policy that covers the specific event that caused the interruption. The business must also provide evidence of the financial losses it suffered during the restoration period, which is the time it takes to restore the business to its pre-interruption state.

A large aspect of business interruption claims is what is known as mitigation. This refers to the actions that a claimant takes to avoid further business interruption losses from occurring, or to minimise the ongoing loss. The key to this is swift and accurate decision-making, and with considerable claims, it is always advisable to ensure the claimant is assisted by a claims professional in making those decisions.

If the interruption was due to property damage, the business must provide evidence of the damage and the restoration costs. If the interruption was due to a natural disaster, flood, or fire, the business must provide evidence of the damage and the restoration costs, as well as any relocation costs.

Businesses with contingent business interruption coverage may also be able to claim losses resulting from the interruption of their supplier’s or customers’ operations. The insurance policy should specify the covered perils and the period of restoration.

It is important to note that not all business interruption claims are covered by insurance. It is recommended to consult with an insurance professional for more information on coverage issues.

It is vital for businesses to carefully review their insurance policies to ensure that they have the right coverage for their specific needs. It is recommended that businesses review their insurance policies annually to ensure that they have the right coverage and that their policies are up to date. It is a common occurrence that, following an event, businesses find that they have cover for business interruption, but then discover that they are under-insured, which can cause a drastic reduction in any settlement.

The Financial Implications of Business Interruption

When a business experiences an interruption, it can have significant financial implications. As such, it is important to assess the financial impact of a business interruption to determine the extent of the losses and the potential for recovery.

The financial implications of a business interruption can be categorised into two main areas: lost revenue and increased expenses. Lost revenue refers to the income that the business would have generated had the interruption not occurred. Increased expenses refer to the additional costs that the business incurs as a result of the interruption.

To determine the financial impact of a business interruption, it is important to consider the following:

  • Business income: The income that the business would have generated had the interruption not occurred.
  • Operating expenses: The expenses that the business incurs to continue operating during the interruption.
  • Payroll: The salaries and wages that the business pays to its employees during the interruption.
  • Taxes: The taxes that the business is required to pay during the interruption.
  • Loan payments: The payments that the business is required to make on any outstanding loans during the interruption.
  • Rent: The rent that the business pays for its premises during the interruption.
  • Extra expense: Any additional expenses that the business incurs as a result of the interruption.
  • Profits: The profits that the business would have generated had the interruption not occurred.
  • Mortgage/lease payments: The payments that the business is required to make on its mortgage or lease during the interruption.
  • Undocumented income: Any income that the business generates that is not documented.
  • Insurance cost: The cost of any insurance policies that the business has in place.
  • Financial records: The financial records that the business maintains to track its income and expenses.
  • Relocation costs: The costs that the business incurs if it needs to relocate as a result of the interruption.
  • Assets: The assets that the business owns and the value of those assets.
  • Gross earnings: The total earnings of the business before any deductions.
  • Sales: The amount of sales that the business generates.
  • Commission: The commission that the business pays to its sales staff.
  • Financial losses: The losses that the business incurs as a result of the interruption.
  • Lifeline: The financial support that the business may need to continue operating during the interruption.
  • Savings: The outgoings that are no longer payable as a result of the incident.

Assessing the financial implications of a business interruption can be a complex process. It is important to have a clear understanding of the business’s financial records and to work with an experienced professional to determine the extent of the losses and the potential for recovery.

Professional Assistance

To make a business interruption claim effectively, it is recommended that you enlist the services of a claims professional and business interruption financial claims expert. You will also need the cooperation of your accountant.

It is guaranteed that the insurance company will enlist both of the above to assist them in keeping the claim calculation as low as possible, and in more complex cases, they will instruct a forensic accountant to assist them.

If you would like to speak to an expert about this or any other aspect of your claim, call our free Property Claim Helpline on 0800 002 5819, for a no-obligation consultation.

Disclaimer

All content within this or any column, or via the free helpline, is provided for general information only, and should not be treated as a substitute for the Insurance advice of your own broker or any other insurance professional. Claimrite is not responsible or liable for any decisions made by a user based on the content of this site or the free helpline.

Claimrite is not liable for the contents of any external internet sites listed, nor does it endorse any commercial product or service mentioned or advised on any of the sites. Always consult your own Insurance broker if you’re in any way concerned about your insurance cover.