Business Interruption

Also known as ‘Loss of Profits’ or ‘Consequential Loss’ insurance. This is an essential cover for any reputable business .

Cover Provided

Covers against loss of Gross Profit resulting from reduction in turnover and any increase in the cost of working following a loss covered by the Property All Risks or Fire and Perils policy. Cover can be taken for the maximum period of the anticipated interruption to normal business activities.

Extent of Cover

Any loss will be considered so long as there is cover for the material damage element under the Property All Risks or Fire and Perils policy.

When setting the sum insured, the policyholder should ideally consult with their accountant to make sure all figures are adequate. The sum insured will usually be set by calculating estimated Gross Profit using one of two methods:

  • Addition Basis = Net Profit + Standing Charges
  • Difference Basis = Turnover + Closing Stock less Opening Stock + Purchases + Specified Working Expenses

In addition, the policyholder will also need to take account of future inflation and factor in where the maximum period of interruption (The Maximum Indemnity Period) is longer than 12 months

As this is just an estimate of future profitability, the insurer can arrange the Business Interruption policy on a ‘Declaration Linked’ basis whereby the policy will be adjusted at the end of the policyholder’s financial year to take account of actual Gross Profit.

The perils covered and situations excluded will be as defined in the main property policy.

Additional Coverages Included

  • Specified customers or suppliers
  • Failure of public utilities (telecom, gas, electricity, water)
  • Infectious disease outbreak
  • Infestation of vermin
  • Food poisoning

Available Extensions

  • Denial of access due to bomb scare or due to property or vicinity being closed on police or authority instruction
  • Group Interdependency – where loss is suffered due to a contingency occurring at another of the policyholder’s premises

NOTE: Whilst Business Interruption is usually arranged on a Gross Profit basis, it is also possible to measure on Gross Revenue or Loss of Rent