Business interruption insurance is an essential form of cover for professionals. It enables a company to cope with the financial consequences of a material loss that results in a partial or total interruption of its business activity.
What is business interruption insurance?
Business interruption cover aims to compensate a company for the loss of income suffered following a covered insurable event (fire, water damage, storm, etc.).
When a covered incident prevents the business from operating normally, this insurance helps to limit the financial impact, without leading to undue enrichment. It helps preserve cash flow during the recovery period.
How does business interruption insurance work?
Business interruption insurance compensates the company based on the financial losses incurred following an insured event covered by the policy. If your assets are insured, fixed costs such as rent and wages continue to be payable. You may also decide to incur additional expenses (temporary rental of premises or equipment) in order to limit the consequences of the incident. The cover then compensates for this interruption of activity, and therefore of income, for the time needed to get the business back on its feet.
An optional cover under a business combined insurance policy
Cover is available only if the business interruption results from a material loss covered by the policy.
The most common insured events
- fire or explosion
- storm
- machinery breakdown (if this cover has been taken out)
- natural perils, depending on the contractual guarantees
Possible extensions of cover
Depending on the options included in the policy, cover may be extended to:
- inability or prohibition of access to the premises following a covered loss occurring nearby
- a drop in footfall linked to a loss in a shopping centre
- water damage, if the corresponding extension has been taken out
The fees of the expert appointed by the insured may also be covered, within contractual limits.
How is compensation calculated in the event of business interruption?
Compensation is mainly based on the loss of gross profit, as defined in the policy. It is calculated using accounting data in order to assess the actual impact of the loss on the business.
The indemnity period
When taking out the policy, the company selects a maximum indemnity period, generally:
- 3 months
- 6 months
- 12 months
- 18 months
This choice is strategic and should reflect the time realistically required for the business to return to normal operations after a major loss.
When should business interruption insurance be taken out?
Business interruption insurance is particularly recommended for companies whose continuity of operations may be seriously affected by a material loss.
It becomes essential when:
- the activity heavily depends on premises, stock or specific equipment
- fixed costs (rent, salaries, subscriptions, loan repayments) are high and must continue to be paid even in the event of a shutdown
- the company has limited financial reserves to absorb a significant or prolonged loss of income
Without this cover, a loss can quickly weaken cash flow and jeopardise business continuity.
The most exposed sectors
Certain activities are particularly exposed to the risk of business interruption, as their operation depends directly on access to premises or customers. This is notably the case for:
- hotels
- cafés, bars and restaurants
For these businesses, even a few weeks of interruption can have serious financial consequences.
Which expenses are covered by business interruption insurance?
Business interruption insurance is not intended to reimburse every individual expense. Its primary purpose is to compensate for the loss of gross profit, as defined in the policy.
Costs generally covered
Through the compensation for loss of gross profit, the business can in particular cover its fixed costs, including:
- rent
- salaries and social security contributions
- financial charges (loans)
- insurance premiums
- unavoidable general expenses required for the operation of the business
Additional expenses
Certain additional expenses incurred to reduce the duration of the interruption or to enable a faster resumption of activity may also be compensated. These expenses must be:
- necessary
- justified
- and compliant with the terms and conditions of the policy
Expenses not covered
The following are notably excluded:
- investments or improvements made following the loss
- fines and penalties
- losses linked to events not covered by the policy
Why take out business interruption insurance?
Business interruption insurance is a key financial safeguard for companies exposed to the risk of operational downtime. It enables businesses to cope with unforeseen events while protecting their long‑term viability, subject to the conditions set out in the policy.
