Business Interruption for Agencies: Office Fire, Cyber Outage and Loss of Access

Most business reviews focus on Professional Indemnity and Public Liability. The exposure that most often produces an existential loss for an agency is the interruption of its own operations. A look at how business interruption cover responds.

Most business insurance reviews concentrate on liability cover – Professional Indemnity, Public Liability, Management Liability – because liability is where the claims most frequently arise. The exposure that most often produces an existential loss for an agency, however, is the interruption of its own operations.

Business interruption insurance is the part of the property policy that responds to lost income and additional cost when the business cannot operate normally. It is also the part of the policy most commonly underdone in business programs.

What business interruption insurance covers

Business interruption cover responds to the financial consequences of an insured event affecting the business's premises, contents or operations. The standard insuring clauses respond to loss of gross profit or gross revenue during the period the business is unable to operate normally, and to the additional cost the business incurs to mitigate that loss – temporary premises, additional staff, expedited replacement of equipment, communications to clients.

The cover is triggered by an event that is otherwise insured under the property section – fire, water damage, storm, theft, accidental damage. It is the policy that converts a physical loss into a financial recovery rather than only a building reinstatement.

The indemnity period – the most commonly underdone item

The indemnity period is the maximum length of time the policy will respond to the interruption. For an agency, the question is how long it would take to be back to the income level achieved before the event – not how long it would take to reopen the doors.

“The rent roll keeps producing income for as long as the business keeps operating. The day the business stops operating is the day the policy needs to take over.”

Reopening the doors typically takes weeks. Returning to the pre-event income level typically takes much longer, particularly where the business has lost listings, lost rent roll appointments or lost the trust of clients who experienced disruption. Indemnity periods of 12 months are common in business programs; the better practice is 24 months, and longer for businesses whose income depends on a long-cycle sales pipeline.

Cyber outage – the modern interruption event

The most likely interruption event for a contemporary business is no longer a fire. It is a cyber event – a ransomware attack on the business's systems, an outage at a third-party trust accounting platform, a compromised email environment that takes the business offline for several days.

Cyber-driven business interruption typically responds under the Cyber policy rather than the property policy, and the sub-limits and waiting periods inside the Cyber wording matter as much as the equivalent figures inside the property policy. The two policies need to be reviewed together so the business understands which one responds to each scenario.

Loss of access and denial of access

A specific extension worth understanding is loss of access or denial of access. This responds where the business itself is not directly damaged, but the surrounding area is – a fire next door, a flood affecting the street, a police cordon following an incident in the building, an order from a public authority preventing entry. The wording around the trigger and the time limits varies between policies, and the cover is worth confirming for businesses operating from regional main streets where neighbouring events are a realistic exposure.

Additional increase in cost of working

Beyond the standard cover for additional cost incurred to reduce the loss, an Additional Increase in Cost of Working extension allows the business to spend more than the strict economic test would justify in order to maintain client relationships and protect long-term income. For an agency, where the rent roll and the relationship value are the underlying asset, this extension is generally worth having and worth sizing properly.

What we look at when we review the policy

When we review a property and business interruption program for an agency, the conversation focuses on a few specific items. Whether the gross profit or gross revenue sum insured is calibrated to the business's income, including rent roll income, sales commission, project marketing income and ancillary fee income. Whether the indemnity period reflects the time to return to pre-event income, not the time to reopen. Whether loss of access and public authority extensions are in place. Whether cyber-driven interruption is properly addressed inside the Cyber policy. And whether the additional increase in cost of working extension is sized appropriately for an income base that depends on client relationships.

Liability cover responds to claims from others. Business interruption cover responds to the business's own ability to keep operating. Both deserve the same level of attention.

If you would like a review of how business interruption is currently arranged for your business, we are happy to walk through it with you.