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What does business interruption insurance cover?

01/06/2022

A cartoon illustration of a row of blocks falling into each other. And a man trying to keep them upright representing how business interruption insurance can help your business.

High winds, torrential rain or snowstorms…Britain regularly takes a battering from the elements.

In 2004, the Cornish village of Boscastle saw 100 people airlifted out and businesses destroyed due to flash floods. The cost of the damage? An estimated £50 million.

In October 2013, over 600,000 homes and businesses had no power due to storm St Jude. The combined cost to the insurance industry was £300-£500 million.

Even more recently, storm Eunice caused between £200 and £350 million of damage with its record-breaking 122mph winds in February 2022.

Part of these costs was damage to homes and cars. But businesses calling on their business interruption insurance would’ve been a large chunk of the expenses.

Business interruption insurance kicks in if you can't use your usual work premises and trade as normal because of an unexpected event. Like a superstorm.

Business interruption insurance: the basics

It stands to reason that business interruption insurance can't help with every loss of trade. The clue is in the 'interruption' bit. So, for example, if your business profits are down because you lose a contract, that's not covered.

However, it can help if your business takes a hit. A burst water main in the street outside floods your workshop. Or a fire in the premises next door means you can’t access yours.

What does business interruption insurance cover?

Business interruption insurance has two sections.

The first covers increased costs of working; the second part covers loss of income.

Increased costs of working

This section of the cover is also called 'additional expenditure'. And it does what it says on the tin. It reimburses you for the additional costs of keeping your business going after you've been dealt a damaging blow out of the blue.

For example, you might have to hire another office space if yours is badly damaged by a falling tree. Or if essential gas supply repairs mean your trading estate is off-bounds - yet you still have clients to keep happy.

Importantly, 'increased costs of working' cover pays for you to lease replacement equipment so you can keep your business ticking over in the meantime. This type of insurance is ideal for anyone who relies on specialist equipment to do their job.

So if you’re a photographer and can't get hold of your kit, you might have to cancel a wedding shoot at very short notice. As if leaving a happy couple heartbroken isn't bad enough, facing a professional indemnity insurance claim for breaching a contract is even worse.

Business interruption insurance would mean you don’t have to miss the event because you can hire the kit you need and get to the church on time.

Loss of income

The second part of a business interruption policy works differently. If your business is out of action for a while, your insurance can make up for any missed income.

Say you're an online retailer, and the building you store your stock in is out of bounds for a few days. You can't fulfil orders, which means you can't trade. In turn, meaning you potentially lose customers to rivals.

'Loss of income' helps because it pays the difference between your expected income and your actual income while your business is interrupted. This helps if it takes a while to get your temporary offices up and running or you can’t do as much business as usual.

A storm in a teacup

Superstorms are impossible to fully predict, as are burst water mains, trees falling into buildings or gas leaks on industrial estates.

So are pandemics. And a word of warning on the Covid and co front: most business interruption policies won’t cover loss of income or increased costs of working as a result of pandemics or infectious diseases. 

But that doesn't mean you shouldn’t be as prepared as you can be for life’s other unpleasant surprises. So get your tick list together in readiness for the next storm or disaster. Batteries, candles, bottled water…and business interruption insurance.

If you need advice, you can email the team at contactus@policybee.co.uk or call our team of experts on 0345 222 5391.

Image used under licence from Shutterstock

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