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The risk library  /  What the policy says

Art. 12 · What the policy says · 3 min read

Business interruption, properly explained

Property cover rebuilds the building. Business interruption keeps the business alive while that happens, and it is where the largest gaps hide.

After a serious fire, the building is the easy part. The hard part is twenty months of no revenue, staff you either pay or lose, customers who go elsewhere and don't all come back, and fixed costs that carry on regardless.

Business interruption cover pays for that: the gross profit you didn't earn, and the extra costs of working around the problem. Two settings decide whether it works, and both are commonly wrong.

The sum insured. "Gross profit" in an insurance policy is not gross profit in your accounts. The insurance definition is closer to revenue minus the costs that genuinely disappear when you stop trading. Wages, rent, rates and most overheads do not disappear, so they belong inside the figure. Businesses that use the accounting number typically understate the insurance one badly, and then meet the average clause from the previous article.

The indemnity period. This is how long the policy keeps paying, and twelve months is the default almost nobody questions. Consider what twelve months has to cover: making the site safe, insurer's investigation, planning permission, tendering, the rebuild itself, refit, recruitment, and only then the slow climb back to where trade was before.

NORMAL TRADING FIRE reopens 12 months cover stops here: trade is still less than half 24 months covers most of it SHADED AREA = THE LOSS
Fig. 13 · The loss does not end when the doors reopen. Reopening is roughly the halfway point; the tail of a business interruption loss is customers returning, and it is slow.

An indemnity period is usually cheap to extend, because the extra years are the least likely to be used. Going from twelve months to twenty-four rarely doubles the price and frequently doubles the usefulness.

Use it

  • Rebuild the sum insured from the definition. Use the policy's wording for gross profit, not your accountant's. Your broker or accountant can do this in an afternoon.
  • Walk through a realistic worst case on a calendar. Fire, insurer's inspection, planning, tender, build, refit, reopening, recovery. Count the months. That is your indemnity period.
  • Include the recovery tail. Cover that stops the day you reopen stops at the moment you most need working capital.

Want this run against your own numbers?

We put ranges, not single figures, against the risks your business actually carries.

Speak with an expert

Explanatory content only. This article describes how insurance and risk decisions work in general terms; it is not insurance, legal, actuarial, or investment advice, and it is not a recommendation to buy, keep or cancel any cover. Every figure and diagram is illustrative, chosen to make a mechanism visible, not to describe any particular business.