Business interruption insurance
Business interruption insurance is the cover that keeps a company solvent after a fire, flood or escape of water shuts it down. Property cover rebuilds the building and replaces the stock — but it does nothing for the trading income you lose while the doors are closed and the staff, rent, loan repayments and other overheads keep falling due. Business interruption picks up that gap: the lost gross profit and the extra costs you incur getting back to normal. It is also the cover that most often fails at the point of claim, not because the policy is wrong but because the sum insured and the indemnity period were set too low at inception. Underinsurance is the classic failure point, and it is almost always avoidable. At Apex we set these figures properly at the outset and place the risk with a named broker who understands how the calculation actually works.
Key covers
- Loss of gross profit — the core cover: your fall in turnover multiplied by your gross profit rate, less any savings in charges that stop during the interruption. This is what replaces the earnings the business would have made had the loss not happened.
- Increased cost of working — the extra expense of keeping trading after a loss: temporary premises, hired plant, overtime, subcontracting and expedited deliveries, so long as the spend is economic against the profit it protects.
- Additional increased cost of working — a separate, first-loss limit for costs that keep the business running even where they cannot be justified purely by profit saved, useful for service and technology businesses whose value is continuity of operation.
- Loss of rent / rent receivable — for landlords and owner-occupiers, cover for rental income lost while a property is untenantable after an insured event.
- Book debts and outstanding accounts — cover where your accounting records are destroyed and you cannot substantiate what customers owed you.
- Extensions to the standard cover — supplier and customer premises (denial of access), loss of utilities, notifiable disease and specified events, each subject to their own conditions, limits and, in many cases, a separately declared sum insured.
- Increased cost / fines and penalties — where a delay in resuming supply exposes you to contractual penalties, cover can sometimes be arranged, subject to underwriter agreement.
What underwriters focus on
Business interruption is not rated in isolation — it sits on top of the property risk, so underwriters start with the physical exposure: construction, fire protection, flood zone, occupancy and the loss history of the premises. The interruption cover then turns on how long the business would take to recover and how much income is at stake in that window.
The sum insured. Underwriters look closely at how gross profit has been calculated, because the figure drives both the premium and the payout. Gross profit for insurance purposes is not the accountant's gross profit — it is turnover less the specific variable charges the policy allows you to deduct. Getting the definition wrong is the single most common cause of underinsurance.
The maximum indemnity period. This is the longest period for which the policy will pay, and it must reflect a realistic worst case, not a best case. Rebuilding after a total fire, obtaining planning and building control sign-off, re-fitting, re-sourcing specialist plant and rebuilding a customer base can take far longer than owners assume. Twelve months is frequently too short; 24 or 36 months is common for anything with bespoke premises, long lead-time machinery or seasonal trade.
Trend and growth. The sum insured should be projected forward to the end of the indemnity period, allowing for growth and inflation, so that cover keeps pace with a business that is expanding while the policy runs.
Concentration and dependency. Single-site operations, reliance on one key supplier or customer, and specialist or irreplaceable plant all raise the recovery time and therefore the exposure. Underwriters will price and, occasionally, sub-limit these features.
Common claims
Fire destroys a section of a manufacturing unit; production halts for eleven months while plant is re-sourced and the building is reinstated — loss of gross profit and increased cost of working respond across the indemnity period.
An escape of water from a floor above floods a ground-floor retail unit, closing it for the fit-out period — lost gross profit plus the cost of a temporary trading location under increased cost of working.
A river or surface-water flood renders premises untenantable for months; alongside the property claim, the business interruption section covers the trading shortfall and, for a landlord, the loss of rent while tenants cannot occupy.
A fire at a key supplier's factory stops your production line even though your own premises are undamaged — the suppliers' extension responds, provided that extension was arranged and the supplier declared.
A fire in a neighbouring unit leads the authorities to cordon the whole estate, denying access to your undamaged premises — the denial of access / prevention of access extension responds, subject to its distance and time conditions.
A fire destroys your accounting server and paper records so you cannot prove outstanding customer balances — the book debts cover responds where it has been included.
The mistakes that cost you at claim
Underinsurance on the sum insured. If the declared gross profit is lower than the true figure, the policy is subject to average (or the equivalent condition of average / underinsurance clause) and any payout is scaled down in the same proportion — a shortfall that only comes to light when the business can least afford it. Because the figure has to be projected across the whole indemnity period, it is easy to under-declare without realising. Our free underinsurance check at /underinsurance-check/ stress-tests the number before you ever need to claim.
An indemnity period that is too short. Setting 12 months to save premium is a false economy if a real fire would take two years to trade back from. When the indemnity period expires, cover stops — even if the business is still not recovered. This is the second-most-common cause of a disappointing settlement.
Breached policy conditions. Warranties and conditions precedent — intruder and fire alarm maintenance, hot-works permits, housekeeping, waste removal — sit under the property section that triggers the interruption cover. Breach them and the underlying property claim, and with it the business interruption claim, can be reduced or declined.
Undeclared activities or premises. A new site, a change of trade, a bolt-on activity or a material change in turnover that is not notified can leave part of the business uncovered or give the insurer grounds to reduce a claim.
Missing extensions. Supplier, customer, utilities and denial-of-access exposures are not automatically covered to a meaningful level. If the risk that closes you down sits at a third party's premises and no extension was arranged, there may be no cover at all.
Compliance and risk considerations
Business interruption cover itself is not compulsory, but it interacts with duties that are. Where a lease or a commercial loan requires you to insure the property and maintain business continuity, the wording of your finance or tenancy agreement may specify minimum cover — check it against your policy.
Under the Insurance Act 2015, a commercial policyholder has a duty of fair presentation — to disclose every material circumstance it knows or ought to know, made in a reasonably clear and accessible way. Incomplete or careless presentation of turnover, occupancy or activities gives the insurer remedies that can reduce or avoid a claim. Presenting the risk fairly and fully is exactly where a broker earns its place.
If you employ staff, Employers' liability cover is separately compulsory under the Employers' Liability (Compulsory Insurance) Act 1969; business interruption does not replace it, but a prolonged closure raises real questions about continuing to pay and retain staff, which the sum insured should reflect through the payroll basis you choose.
Where an interruption arises from a wider event — for example a notifiable disease or a mains failure — cover depends entirely on the specific extension wording and its conditions. Recent years have shown how much turns on the precise policy language, so the scope of any such extension should be confirmed in writing rather than assumed.
Frequently asked
How do I work out the right sum insured?
What indemnity period should I choose?
What actually triggers a business interruption claim?
What is average and how does it cut my payout?
Can I add cover for suppliers, customers or loss of access?
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