What is Business Interruption?
Business interruption is any unexpected event that financially disrupts your business, preventing you from earning any income for a duration of time. For instance, a fire breaks out and spreads, leaving the property devastated and the business unable to continue operations until the building is restored to previous condition.
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Business interruption insurance is often available as an “add-on” for commercial property insurance policies or business insurance packages. Whereas commercial property insurance will cover the physical damage to the property itself, business interruption insurance covers any loss of earnings as a result of the damage. It is designed to financially protect businesses from losing their regular income, so that they remain in the same financial position as their business recovers from the disaster.
According to research by Direct Line, over 550,000 of the UK’s small businesses have been forced to suspend trading over the last two years. The average cost of two weeks of disruption to a small business is £8,755 just to keep it afloat. However, on average, the period of suspended business activity is more than three months. Three times longer than the fifth of small businesses claim that they can survive without trading.
Research has found that 40% of the UK’s commercial properties are under-insured when it comes to business interruption cover. According to the Arson Prevention Bureau,
“70% of businesses involved in a major fire either do not reopen or fail within three years.”
Without adequate protection in place, business owners may find themselves struggling to get themselves back on their feet and recover from a disaster – be it fire, storm or flood. The costs of business interruption can be far greater than they had imagined.
|Effect of disruption||% of small business owners who have experienced disruption in last 2 years|
|Reduction in profit||48%|
|Reduction in revenue||42%|
|Had to put personal money into the business||32%|
|Used up cash reserves||32%|
|Had to place expansion plans on hold||23%|
|Forced to lay off employees||16%|
|Had to borrow from friends and family||10%|
|Forced to source credit to keep business afloat||10%|