Business Interruption Insurance UK: What It Covers When a Fire Closes Your Premises

When a fire closes a commercial premises, the immediate physical damage is only part of the loss. The business may also lose months of trading, miss customer orders, lose ongoing payroll obligations and incur extra costs to keep operating from a temporary location. Business interruption insurance is the cover that pays for that ongoing trading loss.

Recent industrial fire incidents in the UK have refocused attention on whether SME policies are sized correctly. This guide explains what business interruption insurance actually covers, how payouts are calculated, where the common gaps are and what to do in the first 48 hours after a fire.

What business interruption insurance actually covers

Business interruption insurance is usually written as an extension to a commercial property or combined commercial policy. It pays out when an event covered under the property section, such as fire, flood or storm damage, prevents the business from trading normally.

The classic cover is loss of gross profit during the indemnity period, plus the additional costs of working incurred to keep the business running from elsewhere, plus increased cost of working that is reasonable in the circumstances.

Cover typically excludes losses that arise from causes that are not in the property section, such as a cyber attack, a supplier collapse, or a denial of access caused by something outside the policy scope. Some policies offer extensions for denial of access, supplier extension cover and notifiable disease cover.

How payouts are calculated

Two numbers drive the calculation: the sum insured (or estimated annual gross profit) and the indemnity period. The sum insured is the maximum the insurer will pay over the whole indemnity period. The indemnity period is the maximum time the cover continues, starting from the date of the insured event.

Gross profit in a BI policy is not the accounting term. It is defined in the policy and typically equals turnover minus variable costs that fall away when the business stops trading. Many businesses underestimate gross profit because they confuse it with net profit.

Common payout calculations subtract any saved expenses (like raw materials that did not have to be bought because the business was not trading) and add back fixed costs and lost margin. The result is paid month by month for the duration of the indemnity period or until the business is fully back to normal trading, whichever comes first.

What it does not cover

Loss caused by events not covered under the underlying property section. If a fire is excluded, the BI claim is also excluded.

Loss after the indemnity period ends, even if the business has not recovered.

Loss in excess of the sum insured. If the calculation shows a higher loss than the policy limit, the insurer pays the limit.

Underinsurance penalty. If the sum insured was set below the actual gross profit, the insurer can apply average and scale the payout down proportionally.

Knock on costs from cyber, employment disputes or trade credit issues are usually not covered under standard BI sections. They may need separate covers.

Common exclusions and undervaluation pitfalls

Indemnity period too short. A 12 month indemnity period is often the default but recovery from a serious fire often takes longer, particularly when planning permission, decontamination or specialised equipment is involved.

Sum insured too low. A common mistake is using last year's gross profit without an inflation adjustment, projection of growth or planned capital expenditure.

Wide area damage exclusions. Some policies exclude losses caused by events that affect a wide geographic area beyond the insured's own premises.

Denial of access caused by emergency services. Some policies exclude denial of access caused by police or fire service operations in the surrounding area beyond a set radius or duration.

What to do in the first 48 hours after a fire

Make sure everyone is safe and follow fire and rescue service instructions. Do not re enter the premises until cleared by the fire service.

Notify your insurer or broker as soon as you can, ideally within 24 hours. Most policies have a notification clause and delay can prejudice the claim.

Preserve evidence. Take photographs and video before any clean up begins. Keep receipts for any emergency expenditure incurred in the first hours and days.

Engage a loss assessor on your side if the loss is large or contested. Loss assessors are paid by the policyholder; loss adjusters are paid by the insurer.

Start a daily log of trading impact, customer cancellations, employee time and emergency spending. This forms the backbone of the BI claim file.

When the FOS gets involved

If the insurer rejects a claim or settles for less than you believe is due, raise a formal complaint with the insurer first. Insurers must publish their complaints procedure and respond within defined timescales.

If the complaint is not resolved within eight weeks or you receive a deadlock letter, you can escalate to the Financial Ombudsman Service. The FOS is free for customers and can make binding awards against insurers up to its current monetary limit.

The Financial Conduct Authority does not handle individual complaints but supervises insurers' conduct under the Consumer Duty and other rules. If you believe the insurer's conduct breaches the rules, you can report concerns to the FCA.

Frequently asked questions

What is business interruption insurance?

Cover that pays out for loss of gross profit and additional costs of working when an insured event such as a fire closes or restricts the business. It is usually written as an extension to a commercial property or combined commercial policy.

What is an indemnity period?

The maximum time the BI cover continues after an insured event. Common indemnity periods are 12, 18 or 24 months. Setting it too short is a common cause of unexpectedly low payouts.

Will a cyber attack be covered under BI?

Usually no. Standard BI sections are tied to physical damage causes such as fire or flood. Cyber business interruption is usually covered under a separate cyber policy.

How do I report a complaint about a BI insurer?

Start with the insurer's complaints process. If not resolved within eight weeks or in deadlock, escalate to the Financial Ombudsman Service. The FOS is free for customers.

Should I use a loss assessor?

For large or contested claims, a loss assessor working on your side can help. Loss assessors are paid by the policyholder; loss adjusters are paid by the insurer. The Institute of Public Loss Assessors publishes a directory of members.

How do I know if my sum insured is high enough?

Recalculate annual gross profit using the BI definition (turnover less variable costs), project forward to the end of the indemnity period and adjust for inflation. Many brokers offer an annual BI review.