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What is Business Interruption Insurance?

Posted 4 years ago

What is Business Interruption Insurance?
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With the coronavirus outbreak having inflicted significant economic damage on businesses throughout the UK, many have resorted to utilising the raft of government support schemes that were introduced as part of a package of measures introduced to help stabilise the economy. 

Yet, as Nextfin has shown, while these schemes have offered financial protection for a number of entrepreneurs, for many businesses the measures simply do not go far enough in bridging the gap for those businesses that are barely able to break-even.

As a result, many businesses are taking other steps and resorting to their insurance policies as a way to aid their financial recovery. One example of this is business interruption insurance. 

What is it?

In short, business interruption insurance is a mechanism that provides an insured company with protection should it see an unexpected interruption to its income as a result of an unexpected event. Included within this definition is something known as a ‘material damage proviso’. This means that the insurance is valid when a claim is made against your building, and can protect you against the consequences of business interruption, such as a loss of income. 

Landmark court case

However, in the UK, over 400,000 small businesses are waiting for news on whether insurance providers will have to pay out on their business interruption policies. During the pandemic, insurers claimed that these policies were void due to the fact that coronavirus had not been designated as a ‘notifiable disease’ when policies had been taken out. 

One of the main points of contention is the argument that without damage to business properties, the coverage provided by insurance is not valid. However, policyholders argue that by paying their premiums, they should be covered regardless of what causes interruption to business. 

A High Court ruling is now expected to determine whether insurers will have to pay out business interruption insurance policies, to meet claims for coronavirus-related losses. The FCA’s intention in commencing the test case is to resolve the uncertainty as to whether policyholders can recover under two common extensions to BI cover (where many have been refused pay-outs by their insurer):

  • “infectious disease” extensions, which provide cover in some circumstances for business interruption where a notifiable disease has occurred at or within a given radius of the premises;
  • “prevention of access” extensions, which provide cover in some circumstances where access to the business premises is hindered as a result of steps taken by a public authority following an emergency.

How do I make a claim?

Due to the complexities and forensic nature of business interruption claims, it can pay to have a professional on your side to help calculate the claim on your behalf. This is where a Loss Assessor can help. However, below is a general set of instructions for making a claim. 

1. Ensure you keep information together

As stated above, the process for making a claim is extremely forensic. As such, it is important you include as much supporting evidence as is possible. In order to prove lost income, a business will need to show its accounts and confirm its trade history and the levels of income that are likely to have been received prior to the point of loss. We advise that you keep a continuous record to ensure that you always have a collection of the correct documents should you ever need to make a sudden claim. 

2. Know your insurance claims process

We greatly recommend that you read your insurance firm’s guidance on their claims process to ensure that you are aware of what documentation you will need to aid your claim. This will increase the chances of making a successful claim. 

3. Keep an eye on every detail

Paying close attention to the correct formatting and timings provided as part of the claims process is also key by adhering to the stated process to the letter, businesses can avoid becoming tripped up as claims move through the system.

According to CEO of Nextfin, Sacha Bright: “Although Nextfin is not qualified to give advice around insurance related products - as a regulated company that signs up to the principles of the Financial Conduct Authority (FCA) the key words here is conduct.

“If, these policies have been sold on the basis that the business owner believed that they would be fully covered for an epidemic-related interruption, then I would argue that this is not in-line with the FCA principles that the company has signed up to and they should honour the agreement. 

Author: Sacha Bright & Oliver Murphy


To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed. Nextfin is not liable for any damages arising from the use of or inability to use this site or any material contained in it, or from any action taken as a result of using the site. 

Tagged: sme entrepreneur business alternative finance coronavirus guide

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