Reducing a premium can leave a much larger cash-flow gap. Review the trigger, recovery period and financial basis of your business interruption cover before making changes.
Start with the interruption you are insuring
A damaged shop, workshop or warehouse can create two separate problems: repairing the property and keeping the business financially viable while it recovers. Business interruption insurance addresses specified financial losses following a covered event. It does not automatically pay whenever trading slows or the premises close.
Many business interruption sections depend on insured physical damage. Supplier failure, loss of access, utility interruption or a cyber incident may require a particular extension or a separate policy. Check the trigger, territorial scope and any waiting period instead of assuming the event is included.
Measure recovery beyond the building repairs
Reopening the doors may not restore normal sales immediately. Replacement equipment can have long lead times; approvals, specialist fit-out and rebuilding customer demand can add further delay. Map the sequence from the incident to a realistic return to normal trading.
Compare that timeline with the maximum indemnity period shown in the policy. Also check when the period starts and how the wording treats a business that relocates or does not reopen. A short period can leave a gap even when the original damage is insured.
Use the policy’s financial definitions
Do not assume that “gross profit” in an insurance policy means the figure in your accounts. Ask your broker and accountant to reconcile the policy definition with revenue, purchases, uninsured working expenses, wages and other continuing costs. Allow for business growth and seasonal peaks where relevant.
Review limits for increased cost of working and any separate additional increased cost of working section. The policy may apply economic tests or other conditions to expenditure intended to reduce a loss. Underinsurance provisions can also affect a settlement.
Consider the trade-off before cancelling
Write down which expenses would continue during a closure, what cash reserves are actually available and which customers or suppliers are difficult to replace. Then compare changes to limits, indemnity periods or excesses with the amount of risk the business would retain.
A lower premium is only one part of that decision. Ask for a written explanation of proposed changes and check lease, finance and customer contract requirements before cancelling or reducing cover.
Keep a claim-ready record
Maintain accessible copies of sales records, management accounts, payroll, budgets and key supplier agreements away from the insured premises. After an incident, record the timeline, lost orders and reasonable mitigation expenses, and notify the insurer promptly. Discuss significant recovery expenditure before committing where practicable.
A useful review starts with a realistic interruption scenario and the wording you actually hold. Your broker can help identify questions for the insurer; your accountant can help test the financial figures.
Further reading
This is an updated edition of earlier newsletter material.
General information only; it does not consider your objectives, financial situation or needs. Cover depends on the policy wording, schedule, limits, exclusions and circumstances. Read the relevant policy documents and seek advice appropriate to your situation. No claim outcome is guaranteed.
