What is business interruption insurance?
Business interruption (BI) insurance is one of the most misunderstood - and therefore often overlooked - business insurance policies.
This is largely because many business owners mistakenly believe that other insurances, such as stand-alone buildings and contents policies, will take care of everything if their operations are interrupted by events such as break-ins, floods or fires.
However, while buildings and contents policies will usually put the initial damage right eventually, they make no allowance for the consequential financial losses your business will sustain in what can often be a long-term interruption in your trading. In fact, for many businesses without BI cover, an event that starts with business interruption can lead to a business termination.
Below, you can find out more about what business interruption insurance can do for your company and why it’s essential that you have it.
How business interruption insurance works
Business interruption insurance works by covering the potential loss of income for your business in the event of a fire, flood or other disaster. The idea is that your business will be no worse off than it was before the accident.
Generally, these policies work because they have what's known in the trade as a ‘material damage proviso’. This clause is put in place so that any necessary repairs that need to be made or replacements of stock or equipment can be paid for by the insurance provider. It allows your business to get back up and running as quickly as possible so you can continue to trade.
Business interruption insurance can sometimes be offered as an add-on to your standard business insurance or it can be offered as a standalone policy. In many cases, you will also need to have valid building and contents insurance in place to make a claim.
What does business interruption insurance cover?
Business interruption insurance will cover your place of work, from an office, a market stall or a home office, in the event of damage that directly affects your business. This could include fire and flooding that damages your premises, equipment or stock, for example. These two types of disasters are the most common cause of claims on BI insurance.
Flood claims generally aren’t for heavy rain or a river that has burst its banks, but for things such as burst pipes or a collapsed water tank on the roof. These things can have a huge impact on a business, but with this type of insurance, any income loss caused by the damage would be covered.
Stock can eventually be replaced, as can computers and other physical objects you rely on. But a flooded building will often need at least two months to dry out, and in the case of a severe flood, it may take more than six months to be habitable again. Specialist machinery can sometimes take just as long to replace. If you cannot operate in the interim, you will lose revenue, possibly run out of money, and probably lose irreplaceable staff as well as valuable customers.
How much does business interruption insurance cost?
The cost of business interruption insurance could vary depending on the type and amount of cover you need. To find out how much it could cost your business, you can contact us to get a quote or get a quote online.
How to make a claim under your business interruption insurance
Making a claim on your business interruption insurance can be done through your insurance provider. There should be details on their website that tells you how to do this. A claim can usually be made by filling in an online form or emailing the right department to let them know of a problem. Your insurer will then get back in touch with you to find out more details about how you want to proceed.
If your insurance is with Markel Direct, our Claims page gives you all the right contact information and answers any questions you might have about making a claim.
Is business interruption insurance a necessity?
Whether you need business interruption insurance or not depends upon a number of factors. If you're sure that a fire burning your premises down would barely affect your ability to trade – because you could be operating again in days from serviced offices, for example – it may not be necessary for you.
However, if you carry a lot of stock, or require substantial premises in order to operate, business interruption insurance could be the only way to stay in business long enough to get back on your feet.
You also have to consider factors such as customer loyalty. If you're sure that you could survive being closed for a few weeks and then pick up where you left off, that's great. The trouble is that even the most loyal customers will find new suppliers when you can't help them, and while you might be trading again after a couple of months, the consequential cost of lost customers and sales in the long term could be insurmountable.
Just as importantly, when you add business interruption cover to a Markel policy, you can rest assured that in the event of a business interruption, we will work with you from day one to get your business up and running again as quickly as possible, and minimise any possible financial impact in the long term.
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