Business interruption insurance covers lost income and ongoing expenses when a disaster forces your business to close; essential protection for any UK company that relies on its premises to trade.
0
min read
Business interruption insurance helps replace lost income when a disruptive event impacts your trading. It bridges the gap between property damage and getting back to normal operations, covering ongoing costs like rent and wages. This protection is particularly vital for businesses reliant on premises to trade. But Aviva estimates that 50% of UK companies are underinsured, highlighting that “40% of policies with buildings have at least one premises suspected to be underinsured by 20%.”
Here's a snapshot of what business interruption insurance can provide for your business and important claim conditions to know.
With the right policy in place, you can protect your business against income loss and keep operations running even if disaster strikes.
Business interruption insurance is different from standard commercial property insurance, which covers physical damage. Business interruption insurance specifically addresses negative impact on earnings and ability to pay expenses.
For UK SMEs with premises, this distinction matters enormously. Research shows that 28% of UK businesses experienced some form of disruption in 2024. The report highlights “closed, inaccessible or damaged premises, stolen or damaged stock amongst the biggest issues.”
Property insurance rebuilds your shop after a fire. Business interruption insurance keeps your business going financially when an unforeseen event takes place that interrupts business as usual. It’s important to pay attention to a policy’s specific wording to understand exactly what it covers and what it excludes from coverage.
Core business interruption insurance cover includes lost turnover or gross profit, ongoing fixed costs like rent and utilities, and relocation expenses for temporary premises. Its purpose is to restore your business to its pre-event trading position.
Understanding the flow from damage to payout helps you prepare:
The protection extends to loss of income across your chosen indemnity period. You'll need to document your losses through management accounts and bank statements to support any insurance claim for business interruption. Thorough records lead to smoother claims processing and quicker payments.
Many policies make interim payments for immediate cash flow while assessing your full business interruption insurance claim. Some policies also cover increased accountancy fees and professional costs. However, these additional expense payments typically offset against loss of income payments.
Understanding what business interruption insurance covers also helps you identify any gaps. The better you know your policy, the fewer surprises you'll face when making a claim. This knowledge becomes crucial when we look at what's excluded in the next section.
In many cases, business interruption insurance policies cover permanent staff wages during the indemnity period if you've chosen gross profit as your cover basis. You can keep your team employed even when premises remain closed. But, there are possible caveats.
Many policies cap wage payments or exclude casual and temporary workers. You must prove these wages represent necessary business costs. 44% of SMEs don't have sufficient insurance in place to cover for overheads, including staff wages. Check your limits carefully against your actual payroll to identify any exclusions.
Standard coverage typically includes damage from the following incidents to trigger a claim.
These represent some of the leading causes of claims in UK business interruption insurance. It’s also crucial to know what is often excluded though.
Common exclusions unless you buy extensions include the following.
Before the COVID-19 outbreak, few businesses paid attention to whether they were covered for business interruption due to a pandemic. Few business owners expected that such an event could occur and many others believed their business interruption insurance would cover pandemic-related closures. However, most policies explicitly excluded communicable diseases and pandemics, leaving businesses without the protection they expected. This highlighted the critical importance of understanding your policy exclusions. Today, policies now contain even more explicit pandemic exclusions following widespread claims disputes during the COVID-19 outbreak period, especially in 2020 and 2021.
Some policies include "denial of access" clauses covering situations where authorities prevent premises access due to nearby damage. Always read endorsements and extensions carefully. What can seem like comprehensive cover on the surface often contains significant gaps.
When reviewing exclusions, consider how each might trigger a business interruption insurance claim. This helps you assess whether additional extensions make sense. Understanding covered events directly influences the calculation and claims process, which we'll explore next.
Business interruption insurance calculations often use a straightforward formula. Insurers examine historic revenue and gross profit trends, add ongoing fixed costs, then subtract savings or mitigation during closure. This calculation spans your chosen indemnity period.
Three factors determine payouts:
Strong financial records and bookkeeping can ease your process considerably. By maintaining rigorous and up-to-date profit and loss statements, forecasts and stock data, your assessments will be markedly smoother. On the other hand, incomplete records cause delays and can result in reduced payments. Substandard record-keeping can turn a valid insurance claim for business interruption into a lengthy dispute.
Most policies require physical damage to insured property directly causing the interruption. For instance, a burst pipe flooding your warehouse qualifies, but a general economic downturn doesn’t.
Some policies extend coverage to denial of access or supplier dependency issues, but these aren't standard. The crucial requirement for a successful business interruption insurance claim in most policies is "material damage". Check your exact claim trigger definitions, as these determine your eligibility. Without meeting such requirements, even legitimate business losses remain uncovered.
Your business interruption insurance depends a lot on a range of factors. These include turnover, sector risk, location and indemnity period chosen. Many UK businesses pay no more than £100 per year. In general, premiums rise substantially for larger operations or high-risk sectors.
Five key cost drivers:
When getting a business interruption insurance quote, it’s essential to compare more than headline prices, to really understand what you are getting. This means looking at your actual coverage, policy exclusions and excess amounts. Multiple quotes help you balance cost against protection and identify the best policy for you. Something else to keep in mind is that some insurers offer business interruption insurance cost reductions for strong risk management practices or longer policy terms.
Business types that need coverage most include the following.
Key determining factors include the following.
Business interruption ranks as the second biggest threat to businesses in the UK, with 31% of companies citing it as a major concern in 2024. Service businesses with lower physical risk or even those that operate online only are also advised to assess supply chain and fulfilment vulnerabilities.
Here are some crucial questions to consider:
Worrying answers suggest this insurance deserves serious consideration. Another process that you can consider putting in place is to periodically map out your key revenue drivers and run disruption simulation scenarios in order to understand risk and how it would impact your business. This can give you insight into contingency or mitigation planning should such scenarios ever happen in real life.
Even comprehensive cover contains gaps. Claims might be delayed or denied based on exclusions. UK insurers pay out approximately £22 million daily in business insurance claims, but not every claim succeeds.
This creates cash flow challenges that flexible funding can address. At some point, you might face cash flow problems while you’re waiting on a claim settlement or an exclusion could result in only partial coverage. In such scenarios, business finance can keep your operations running.
iwoca’s fast business loans let you borrow what you need, pay only for what you use, repay early with no fees, and top up as situations change. For businesses managing interrupted income, quick access to flexible capital can make the difference between riding out disruption and permanent closure.
Some UK businesses benefit from combining insurance protection with a business loan. By combining both, you get peace of mind that you’re protected in the event of disruption and you get a financial buffer for unexpected expenses or delayed insurance payouts. And the flexibility means you're never caught short whilst waiting for claims to process.
Insurance handles covered losses, but smart financial planning addresses any gaps you may have. By pairing comprehensive business interruption cover with flexible finance options, you lock in much more robust business protection and long-term resilience against both insurable events and unexpected exclusions.
If you’d like to check your eligibility for an iwoca business loan, you can apply here.
