Business Interruption Claims Explained
What loss of profits cover actually pays for, and how to document it correctly.
It is not the building, it is the trading
Business interruption cover responds to the money your business stopped earning because of insured damage. It sits alongside the material damage claim, not inside it, and on a serious loss it is frequently the larger of the two figures. It is also the part most often under-claimed, because quantifying it requires accounts rather than a walk around the premises.
Gross profit does not mean what you think
Insurance policies define gross profit their own way, and it rarely matches the definition in your accounts. Broadly it is turnover less those costs that genuinely vary with turnover — stock purchases, for instance — while fixed overheads such as rent, insurance, rates and salaried wages remain covered because you go on paying them while closed. Businesses that calculate a sum insured from their accountant’s gross profit figure often end up materially under-insured, which then triggers the average clause and reduces everything proportionately.
The indemnity period is the decision that matters
Your indemnity period is the maximum length of time the policy will pay for, and it runs from the date of damage until trading returns to the level it would have reached had the damage never happened. That is longer than the rebuild. A restaurant reopening after a nine-month fire repair does not return to its previous covers on the first night; customers have gone elsewhere and have to be won back. Twelve months is the common default and it is frequently too short. Twenty-four or thirty-six is more realistic for anything requiring planning permission or specialist fit-out.
Increased cost of working
Most policies also pay the additional expense of limiting the loss — temporary premises, hired equipment, overtime, subcontracting work out, expedited deliveries. There are two variants. Ordinary increased cost of working is recoverable only up to the amount of loss it saves the insurer. Additional increased cost of working, where you have it, pays reasonable expenditure even where it does not pay for itself, and is much the more useful cover.
What you will need to produce
Audited accounts for the preceding years, monthly management accounts, VAT returns, payroll records, bank statements and any orders or contracts lost as a consequence. You will also need to evidence what the business would have achieved during the interruption, which means trend data rather than last year’s figure alone — a growing business that claims on last year’s turnover undersells itself.
Where claims go wrong
Three things, in our experience. Sums insured set years ago and never revisited. Indemnity periods chosen for the premium rather than the reality of rebuilding. And insufficient records, particularly in cash-heavy trades, to prove what was being earned. The first two are fixable at renewal. The third is fixable only before a loss happens.
How we approach it
We prepare the business interruption claim alongside the material damage, working from your accounts and with your accountant where appropriate, and we negotiate both as one settlement. The first consultation is free. Call 085 268 7871.
Dealing with a claim right now?
The first consultation is free and there is no obligation. Call 085 268 7871 or send us the details of your claim.
Call 085 268 7871