Why lost income is the hardest part of a commercial claim
Business interruption cover, often called loss of profits or business income insurance, pays for the financial consequences of physical damage rather than the damage itself. The question is never simply what broke, but what the business would have earned had nothing happened. That counterfactual has to be built from accounts, forecasts, seasonality and market evidence, which leaves considerable room for honest disagreement.
Most wordings tie the cover to an insured physical event at the premises, sometimes extended to suppliers, customers, denial of access or utilities. The policy also fixes an indemnity period, commonly twelve, eighteen or twenty-four months, during which the shortfall is measured. Choosing too short a period at renewal is one of the most frequent reasons a genuine loss ends up only partly covered.
Who sits around the table
On the insurer's side you will usually meet a loss adjuster, who handles the physical damage and coordinates the claim, supported by a forensic accountant who tests the income calculation. In the US and Canada the adjuster may be an employee of the carrier or an independent firm; in the UK, Ireland and Australia independent loss adjusting firms dominate larger commercial losses.
The policyholder can appoint its own representative: a public adjuster in North America, a loss assessor in the UK and Ireland, or a claims preparer working alongside the company's accountants. Their job is to present the claim in the policyholder's interest, gather the evidence and negotiate the settlement figure.
From the first site visit to the final settlement
The early weeks set the tone. The adjuster inspects the damage, confirms that cover is triggered and asks for management accounts, budgets and prior-year figures. A reservation of rights letter is common at this stage and does not mean the claim will be refused; it simply preserves the insurer's position while facts are checked.
Because the loss continues to grow, BI claims are rarely settled in one payment. Interim payments are negotiated against monthly loss statements, and the final figure is agreed once trading has recovered or the indemnity period has ended. Keeping a monthly rhythm of reporting, with the same format each time, makes those interim discussions much smoother.
- Notify promptly and record the date trading was first affected
- Agree a reporting template and a timetable for loss statements early
- Request interim payments as soon as a minimum loss can be demonstrated
- Track mitigation decisions and their cost from day one
The evidence that carries a business interruption claim
Insurers expect a coherent paper trail: at least two or three years of audited or filed accounts, monthly management figures, sales ledgers, order books, payroll records and VAT or sales tax returns. Contracts lost or delayed because of the incident, customer correspondence and evidence of cancelled bookings are particularly persuasive.
Equally important is evidence of what the business did to reduce the loss: renting temporary premises, outsourcing production, paying overtime or air-freighting stock. Many policies cover these increased costs of working, provided they were reasonable and saved more than they cost, so the reasoning behind each decision should be documented at the time.
How the loss is calculated
The core method compares actual results during the indemnity period with the results that would have been achieved without the incident. UK-style gross profit wordings usually work from the reduction in turnover multiplied by the rate of gross profit, then deduct savings in costs that ceased. North American business income forms tend to focus on net income plus continuing normal operating expenses, including payroll where covered.
The adjustments are where the money moves. Trends clauses allow the baseline to be raised or lowered for growth, new contracts, lost customers or market changes that would have happened anyway. Defining which costs are variable and which continue during the stoppage also has a large effect on the final number.
Typical points of disagreement
Disputes cluster around a handful of themes. Insurers may argue that turnover was already falling, that the business would have lost a key client regardless, or that the recovery took longer because of the policyholder's own choices. Policyholders often contest the treatment of payroll, the length of the restoration period and the denial of extra expenses that were incurred under pressure.
Underinsurance is a recurring source of conflict. If the declared gross profit or the sum insured was too low, an average clause may reduce the payment proportionally. Wide-area events add another layer, as the pandemic-era test case before the UK Supreme Court in 2021 demonstrated, since wordings on disease, denial of access and causation can be read very differently.
- Baseline trends and the effect of pre-existing decline
- Length of the indemnity or restoration period
- Variable versus continuing expenses
- Reasonableness of increased costs of working
- Application of average or co-insurance clauses
When a policyholder's expert is worth considering
Smaller interruptions of a few days, with clear sales records, can often be handled directly with the insurer and the company's accountant. Professional support becomes more valuable when the stoppage is long, when the business is seasonal or growing fast, when several locations or suppliers are involved, or when the insurer's accountant has proposed a baseline that management considers unrealistic.
A good representative will read the wording before anything else, model the loss using several defensible methods and make sure every interim payment request is backed by reconciled figures. They should work with, not replace, your external accountants, who know the business history and can sign off figures quickly. If talks stall, appraisal clauses in North America, the complaints procedure followed by the Financial Ombudsman Service in the UK, the Financial Services and Pensions Ombudsman in Ireland or AFCA in Australia may be open to eligible smaller businesses, while larger disputes typically move towards mediation or litigation.
Practical habits that protect the claim
Keep a decision log from the first day, recording what was done, why and at what cost. Separate the incident-related costs in your accounting system with dedicated codes. Avoid accepting a final settlement while the indemnity period is still running unless the figure clearly reflects the remaining exposure.
Finally, revisit your cover once the claim is closed. The experience of a real interruption is the best possible test of whether the sum insured, the indemnity period and the extensions for suppliers and utilities actually match the way the business operates.
Organisations offering this service
- Financial Ombudsman Service: Official free dispute resolution service in the United Kingdom, handling complaints from policyholders against insurers, including disputed or rejected insurance claims.
- Chartered Institute of Loss Adjusters (CILA): Chartered UK professional body for claims and loss adjusting professionals, responsible for training, qualifications and standards across the claims profession.
- Aspray: UK network of loss assessors handling and negotiating insurance claims on behalf of policyholders, notably after fire, flood and escape-of-water damage.
- Adjusters International: US network of public adjusting firms representing policyholders, businesses and public entities in the settlement of significant property insurance claims.
External links provided for information only; check the terms directly with each organisation.
Frequently asked questions
Does business interruption insurance pay if there is no physical damage?
Usually not. Most wordings require insured physical damage at the premises or at a specified location such as a supplier. Some extensions, for example for denial of access or utilities, can apply in limited circumstances, so the exact wording decides.
How long does a business interruption claim take to settle?
It typically runs at least as long as the interruption itself and often until the end of the indemnity period. Interim payments can bridge cash-flow needs while the final figure is being agreed.
Can my own accountant prepare the claim?
Yes, and their knowledge of the figures is valuable. Complex claims often combine the company accountant with a public adjuster or loss assessor who knows how insurers test BI calculations and negotiate the adjustments.
What is an indemnity period?
It is the maximum period, set in the policy, during which loss of income is covered after the incident. It is not the same as the time it takes to repair the building, because trading may take longer to recover.
Business interruption claims are won on preparation: a clear baseline, consistent monthly figures and documented mitigation. For related guides on commercial losses and expert fees, explore expertdassure.com.