You cannot buy stand-alone business interruption insurance, because this type of cover is always tied to a commercial property insurance policy. You can think of business interruption insurance as a rider on top of commercial property coverage.
To understand why business interruption insurance cannot be purchased on its own, let’s first understand how coverage actually works for a business interruption policy.
Business interruption insurance is most frequently activated when a business owner suffers property damage at their business premises, and can’t operate their business normally. This could be the result of a fire, explosion, water leakage, flood, or some other major risk that’s struck and affected the company. For instance, let’s say you run a restaurant. There’s a massive fire in the kitchen from a gas leak which destroys your entire premises. In such a scenario, you’re going to need compensation to rebuild your property. On top of that, you’re also going to need business interruption benefits to help with the costs of keeping your company afloat. Since you won’t be generating revenue, you’ll need financial assistance to continue paying your staff their salaries, paying your landlord the rent, paying your suppliers for purchased inventory, and paying off many other miscellaneous expenses. Business interruption insurance takes care of all that for you.
When you encounter such an incident that requires business interruption coverage, it’s probably also going to require you to activate property damage cover. This is why commercial property insurance is always bundled together with business interruption insurance. Since both these covers are always bundled, you’ll find that business interruption insurance is commonly found as “Section 2” inside a commercial property insurance policy. “Section 1” is the commercial property cover itself.
How would a business interruption insurance policy work together with commercial property insurance to protect me?
Let’s look at an example to illustrate how a business interruption policy would protect your company.
A metal manufacturer suffered a fire at its factory. The manufacturer was forced to shut down its factory for 3 months to conduct repairs. The manufacturer had to hire a firm to clear a massive mound of post-fire debris that was left behind – burnt walls, destroyed equipment, burnt product, and more. During the 3 months that the factory was shut down, the manufacturer lost 25% of its revenue as it was unable to fulfill contract orders. The company also had pay its staff overtime to deal with the crisis.
Here are the costs that a commercial property insurance policy, with a business interruption policy, would pay for:
- Burnt down factory: Pay the costs to rebuild the factory to its original condition before the fire
- Lost equipment and inventory: Pay the costs to replace equipment (or repair if possible), and costs to replace the lost inventory
- Massive debris: Pay the costs to clear the debris so that rebuilding work can begin. This is often a very significant cost and will form a large percentage of the claim amount. A small retail shop fire could cost $20,000-$30,000 in debris removal alone! Removing debris from large factories could cost hundreds of thousands (or even millions). Business owners who have suffered a fire loss are usually surprised at just how much debris removal costs!
- Lost revenue/contracts: Pay the costs for lost revenue. Note: The exact costs that the business interruption policy would pay for will depend on the type of loss that you choose to cover. For instance, business interruption policies can cover lost revenue, lost gross profit, or loss net profit. The most common type of cover is for lost gross profit.
- Staff overtime: Pay the costs for staff overtime wages, and also additional staff that may be hired to help the business get back on track
I still want to buy stand-alone business interruption insurance. Is there really no alternative?
You’ll need to purchase commercial property insurance together with business interruption insurance. It does not make business sense for an insurance company, from either a risk-management or underwriting perspective, to offer stand-alone business interruption insurance.
That said, you shouldn’t be put off by the potential cost of purchasing commercial property cover. Commercial property coverage is affordable – especially so when you get it from Provide. Our commercial property insurance starts from just $9/month for $100,000 in coverage, and can be easily adjusted upwards for greater coverage needs (we can assist you with up to $250 million in coverage for each property you have, which is quite a staggering amount of protection).
Where should I get business interruption insurance for my company?
Our business interruption insurance is priced at very affordable rates. For example, we offer $20,000 in business interruption insurance (e.g. for a typical professional service firm, like an Accountant), for just $3/month. This means that business interruption insurance for the vast majority of companies is highly affordable.