Business Interruption Insurance
Protect your business income when disaster strikes. Understanding indemnity periods, covered expenses, and how business interruption insurance keeps your business financially viable during unexpected closures.
Important Note
This guide provides general information about business interruption insurance in Australia. Coverage varies significantly between insurers and policies. Always read your Product Disclosure Statement (PDS) and consult with your commercial insurance broker for specific details.
What is Business Interruption Insurance?
Business interruption insurance (also called business income insurance) provides financial protection when your business operations are disrupted by covered events. It replaces lost income and covers ongoing expenses when your business cannot operate normally due to property damage, natural disasters, or other covered perils.
This coverage is crucial because standard commercial property insurance only covers physical damage to your premises and equipment - it doesn't replace the income you lose while your business is closed for repairs or rebuilding.
Why Every Business Needs This Coverage
- • 75% of businesses that close for more than 30 days never reopen
- • Average business takes 6-12 months to recover from major damage
- • Fixed expenses continue even when business is closed
- • Customer relationships are lost during extended closures
- • Employee retention becomes difficult without income
What Triggers Coverage
- • Fire and smoke damage to premises
- • Storm and flood damage
- • Burglary and malicious damage
- • Machinery breakdown (if included)
- • Utility disruptions (some policies)
- • Government-ordered evacuations
- • Access denial by authorities
- • Supplier interruptions (if covered)
- • Key person absence (specialist coverage)
- • Cyber incidents (if included)
Common Exclusions
- • Pandemics (unless specifically covered)
- • Market changes or economic downturns
- • Strikes and labour disputes
- • Voluntary business closure
- • Lack of customers (unrelated to covered event)
- • Financial insolvency
- • Consequential loss (unless covered)
- • Wear and tear or gradual deterioration
- • Routine maintenance periods
- • Deliberate acts by business owners
Core Coverage Components
Lost Revenue/Gross Earnings
Typically Covers:
- ✓ Net income that would have been earned
- ✓ Continuing normal operating expenses
- ✓ Based on historical financial records
- ✓ Seasonal and trending adjustments
- ✓ Projected income for new businesses
Calculation Method:
Gross Earnings = Revenue - Variable Costs
Usually based on 12-month period before loss, adjusted for trends and seasonal variations.
Ongoing Operating Expenses
Typically Includes:
- ✓ Employee wages and benefits
- ✓ Rent, lease, and loan payments
- ✓ Utilities and telecommunications
- ✓ Insurance premiums
- ✓ Professional services (accounting, legal)
- ✓ Equipment leases
- ✓ Advertising and marketing
- ✓ Government taxes and fees
Usually Excludes:
- ✗ Costs that cease when business stops
- ✗ Variable costs (raw materials, COGS)
- ✗ Owner's salary (depends on policy)
- ✗ Expenses that can be suspended
Additional Expenses
May Cover:
- ✓ Temporary relocation costs
- ✓ Equipment rental for temporary operations
- ✓ Expediting expenses (rush shipping, overtime)
- ✓ Additional advertising to retain customers
- ✓ Consultant fees for business recovery
- ✓ Extra transportation costs
- ✓ Temporary staffing costs
- ✓ Communication with customers/suppliers
Purpose:
These expenses are designed to minimise the period of interruption and maintain customer relationships. Must be reasonable and effective in reducing the overall loss.
Indemnity Period
Key Considerations:
- ✓ Maximum period benefits are paid
- ✓ Starts from date of loss
- ✓ Common periods: 12, 18, 24, 36 months
- ✓ Should cover full recovery time
- ✓ Includes time to rebuild customer base
Choosing the Right Period:
- • Manufacturing: 18-24 months typical
- • Retail/hospitality: 12-18 months
- • Professional services: 12-24 months
- • Restaurants: 12-18 months
- • Seasonal businesses: Consider peak seasons
Types of Business Interruption Coverage
Basic Business Interruption
Standard coverage for direct property damage interruptions
Covers Interruption From:
- ✓ Direct damage to your insured property
- ✓ Fire, storm, theft, vandalism
- ✓ Water damage from burst pipes
- ✓ Electrical equipment damage
- ✓ Building structural damage
Limitations:
- ✗ Requires physical damage to trigger
- ✗ Doesn't cover off-premises losses
- ✗ No supplier/customer interruptions
- ✗ Limited additional expense coverage
Extended Business Interruption
Broader coverage including off-premises and supply chain disruptions
Additional Coverage:
- ✓ Supplier/vendor interruptions
- ✓ Customer/receiver interruptions
- ✓ Utility service interruptions
- ✓ Civil authority prohibitions
- ✓ Ingress/egress coverage
- ✓ Attraction property damage
- ✓ Broad additional expenses
- ✓ Extended indemnity periods
Specialist Extensions:
- + Contingent business interruption
- + Denial of access coverage
- + Non-damage business interruption
- + Cyber business interruption
- + Key person coverage
- + Product contamination
- + Government action coverage
- + Communicable disease coverage
Critical Policy Features to Understand
Waiting Period/Time Deductible
Most policies have a waiting period (typically 48-72 hours) before coverage begins. This prevents claims for minor interruptions. Some policies offer options to reduce or eliminate waiting periods for additional premium. Consider your business's ability to operate short-term without income.
Coinsurance Requirements
Many policies require you to insure a minimum percentage (typically 50-80%) of your annual gross earnings. If you're underinsured, the insurer may reduce claim payments proportionally. Accurately calculating your annual gross earnings is crucial.
Extended Period of Indemnity
Standard policies may not cover the full time needed to rebuild your customer base after reopening. Extended period coverage continues benefits beyond physical restoration to account for business recovery time. This is critical for businesses with strong customer loyalty.
Seasonal Adjustments
If your business has seasonal variations, ensure the policy accounts for this in calculations. A loss during peak season should be compensated at peak rates, not annual averages. Policies should include trending factors for growing businesses.
Partial Resumption of Operations
If you can operate at reduced capacity, most policies reduce benefits proportionally. Understand how partial operations affect your claim. Some policies provide incentives for resuming partial operations quickly to minimise overall loss.
Business Interruption Claims Process
1. Immediate Documentation
Document the cause and extent of interruption immediately. Time stamps are critical for establishing the start of the interruption period.
- • Photograph/video all damage
- • Document when business operations ceased
- • Preserve evidence of the cause
- • Record all immediate expenses
- • Note any partial operations that continue
2. Financial Documentation
Compile comprehensive financial records to establish pre-loss earnings and ongoing expenses. Historical data is crucial for claim calculations.
- • Previous 12-24 months' financial statements
- • Tax returns and BAS statements
- • Payroll records and employee contracts
- • Lease agreements and loan documentation
- • Supplier contracts and recurring expenses
- • Business forecasts and budgets
3. Professional Support
Business interruption claims are complex and often require professional assistance to maximise recovery and ensure proper documentation.
- • Engage a loss assessor or public adjuster
- • Work with your accountant for financial analysis
- • Consider forensic accounting for complex claims
- • Maintain detailed records of all claim-related expenses
- • Regular communication with your insurance broker
Industry-Specific Considerations
Manufacturing
- • Longer restoration periods (18-36 months)
- • Machinery breakdown coverage essential
- • Supply chain interruption critical
- • Customer contract penalties
- • Raw material spoilage considerations
Retail/Hospitality
- • Seasonal business variations important
- • Customer loyalty and foot traffic
- • Perishable inventory considerations
- • Location-dependent income
- • Tourism/event-based fluctuations
Professional Services
- • Data and records protection
- • Client relationship maintenance
- • Remote working capabilities
- • Professional indemnity interactions
- • Key person dependencies
Technology/Software
- • Cyber incident coverage essential
- • Intellectual property protection
- • Client data recovery costs
- • Software/system restoration time
- • Reputation management expenses
Healthcare
- • Patient care continuity requirements
- • Medical equipment replacement time
- • Referral network considerations
- • Compliance and regulatory issues
- • Emergency service obligations
Agriculture
- • Seasonal and weather dependencies
- • Livestock and crop considerations
- • Supply chain interruptions
- • Market price fluctuations
- • Government support interactions
Important Disclaimer
This guide provides general information only about business interruption insurance in Australia. Insurance policies, coverage, terms, and conditions vary significantly between insurers and individual policies. Business interruption claims are complex and require careful documentation and professional expertise. Always read the Product Disclosure Statement (PDS) and policy documents carefully. Consult with your commercial insurance broker and professional advisors for advice specific to your business circumstances.
Business Damaged by Disaster?
We specialise in commercial restoration and work with business interruption insurance claims. Our team understands the urgency of getting businesses operational again quickly.