Business interruption insurance article

Business interruption (BI) insurance is one of the most misunderstood - and therefore often overlooked - business insurance policies

That's 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 often lead to a business termination.

What sort of events does business interruption cover help with?

While there are many different causes of business interruption, the two most common are fire and flood. No one ever expects these twin disasters to strike their business, and when they do, they often mistakenly expect other policies to cover all of their losses.

A typical scenario for a flood claim won't even involve heavy rain and a river that bursts its banks. Chances are that a pipe will burst or a rooftop water tank will collapse, and by the time you arrive in the morning your premises will be under three feet of water.

Well, stock can be replaced, eventually, as can computers. Yet a flooded building will often need at least two months to dry out, and in the case of a severe flood 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.

What cover does business interruption insurance provide?

Business interruption insurance always includes what's known in the trade as a material damage proviso: which simply means that it cuts in following a claim made against your building or contents insurance, and covers financial losses that are a direct consequence of a business interruption, such as loss of revenue, loss of rental income and additional staff costs.

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, 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. Get an online quote now or visit our office insurance page for more information.

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