The short answer
A business interruption loss is quantified using what the business would have earned without the event, the expenses that continue and the costs incurred to limit the interruption. The indemnity then depends on the contract: triggering event, excess, indemnity period and limits. Prepare the figures before a loss occurs; they will be easier to substantiate.
The figures to compile
- Turnover for recent financial years, month by month
- Margin and costs that vary with activity levels
- Expenses that continue during the interruption: rent, salaries, leasing
- Additional costs to limit the interruption: temporary premises, subcontracting, overtime
- Realistic time needed to replace equipment or premises
From lost turnover to the indemnity
Lost turnover includes costs you will no longer have to pay during the interruption. Start with the basis defined in your policy and distinguish between expenses saved and continuing expenses. Some fixed expenses are already included in the margin used: do not add them a second time. Additional costs and the gradual resumption of operations are then assessed according to the contract.
What the contract determines
Read the provisions on the event that triggers cover (often insured property damage), the excess expressed as a period or an amount, the indemnity period, which is not the policy term, and the limits. If your business depends on a key supplier or customer, check whether damage at their premises is provided for. Insurers offer solutions that address continuing expenses and additional costs under their own terms. If the indemnity period is shorter than the actual recovery time, you bear the loss for the remainder of that time.
An illustration
Imagine a workshop whose main machine is destroyed. Replacement takes several months; the workshop subcontracts some of its orders. The claim file will organise the supporting documents: reference figures, expenses saved and continuing expenses, subcontracting costs, recovery period. These elements are not automatically added together; each must be assessed against the basis and clauses of the contract. This illustration does not describe a real case; it shows how to organise the supporting documents.
Frequently asked questions
Is the indemnity period the same as the policy term?
No. It is the period during which the loss is indemnified after the event. Compare it with the actual time needed to resume your activities.
Is an interruption at a supplier covered?
Only if the policy provides for it and subject to its terms. This is an extension that needs to be specifically requested and read.
How can I avoid a dispute over the figures?
Keep clear monthly accounts and ensure they remain accessible away from the premises. After a loss, document each additional cost as you incur it.