Business interruption insurance in Australia: what does it cover?

Business interruption insurance is commonly available as a section of a business pack policy, rather than as a policy you buy on its own. The business interruption section of a business pack is designed to help cover lost income or ongoing costs, such as rent, when an insured event such as fire or storm damage stops you trading.

A business pack bundles several covers into one policy. It commonly includes property (building, contents and stock), business interruption, glass, theft, money and public and products liability. A business pack is a common starting point for small businesses with premises.

Industrial special risks insurance is commercial property insurance for bigger or complex sites and businesses, as described on upcover's product page. Business interruption is one of the sections that page lists.

Cover depends on the policy and insurer you choose. Check the policy wording and its terms and conditions for what is and isn't included.

What does business interruption insurance cover?

The business interruption section of a business pack is designed to help cover the trading income you lose after insured damage. Depending on the policy, the insurer may measure the loss as loss of income, "a reduction in business earnings or revenue". Other policies use loss of profits, a "Shortfall in expected profits".

The section may also help with costs that keep running while you can't trade normally, such as rent. upcover's industrial special risks page describes its business interruption section as helping with "lost gross profit and increased costs to keep operating (within limits)".

Cover is subject to the policy terms, conditions and exclusions. Which costs a business pack's business interruption section varies between policy wordings, so always check with your insurance broker or the team at upcover.

What triggers a business interruption claim?

Under a business pack's business interruption section, a claim commonly starts with insured damage, such as fire or storm, that stops or reduces trading. business.gov.au links business interruption insurance to ongoing business costs "if an insured event interrupts your business, such as a fire damaging your business property". Closures without an insured event may fall outside cover.

If you keep trading at a reduced level, a claim may still be possible. upcover's glossary says insurance recovery depends on understanding when the covered period starts and how partial interruptions are treated. Which events count as insured events varies between policy wordings, so always check with your insurance broker or the team at upcover.

How does the indemnity period work?

The indemnity period is the time over which the business interruption section of a business pack may pay for your loss. upcover's glossary defines the indemnity period as "the length of time the insurer will compensate the insured for financial losses following a covered event". The policy wording sets out when it starts.

Business Queensland says you may need to select an indemnity period. Loss after the indemnity period ends is generally outside the section.

Getting trade back to its usual level may take longer than the repairs. Recovery may include clean-up, repairs, replacing equipment and winning back customers.

You can consider how long recovery may take when you choose an indemnity period. An upcover team member or an insurance broker can talk through the options with you.

How is the business interruption sum insured worked out?

For a business pack's business interruption section, how the sum insured is worked out depends on the policy wording. upcover's glossary defines a sum insured as "the maximum amount an insurer will pay under a policy for an insured event".

The policy's measure of the loss may not match the figures in your accounts. Where a policy includes loss of profits, upcover's glossary says the payment is calculated "using agreed accounting formulas defined in the policy". It adds that the calculation is "based on historical financial performance and subject to the indemnity period and policy conditions".

Where the sum insured is too low, some policies apply an average clause that may reduce the payment in proportion to the shortfall. upcover's glossary notes that underinsurance may arise when a sum insured isn't reviewed as the business grows.

What do business pack, industrial special risks and cyber policies commonly exclude?

Business pack exclusions that may affect a business interruption claim commonly include, but are not limited to:

• cyber incidents and data loss where there is no physical damage to insured property, unless you add cyber cover. Cyber insurance is designed to cover costs after a data breach or cyber attack
• fraud or dishonesty by you. Dishonesty by an employee may be covered under an employee dishonesty section of a business pack, where you select one. That section may carry strict rules, and shortages found only at a stocktake may be excluded
• loss or damage caused on purpose by you, your family or anyone acting with your consent
• gradual issues like wear and tear, rust, mould, vermin and depreciation (wear and tear exclusion)
• losses caused by the spread of an infectious disease (communicable disease exclusion)

Industrial special risks exclusions commonly include, but are not limited to:

• flood and sea water, unless flood is added in the schedule
• pollution or contamination clean-up costs, unless limited cover applies after a listed insured event
• the cost of fixing faulty workmanship or design errors, although cover may apply to the resulting damage
• gradual deterioration and wear and tear (gradual deterioration exclusion)

Cyber insurance exclusions commonly include, but are not limited to:

• outages from third party utilities or telecoms, unless the provider's downtime is directly caused by its own security failure
• incidents known or reasonably foreseeable by a senior executive before cover starts

Important: These lists are not exhaustive. Exclusions vary between insurers. Always refer to the policy wording and its terms and conditions for the exclusions that apply to you, and if you have questions you should speak to your insurance broker or the upcover team.

How do you make a business interruption claim?

You can start a claim through the make a claim page. Admitting liability, incurring costs or agreeing to a settlement before you notify your insurer may affect your claim. Starting a claim does not confirm that your claim is covered; your insurer assesses it under the policy terms, conditions, exclusions and limits.

Also keep in mind that notifying of a claim late may affect your claim.

What records support a business interruption claim?

Insurers generally work out a business interruption loss from your historical financial records (loss of income). The Insurance Council of Australia's claims checklist asks for items including:

• BAS lodgements with ATO receipts for the last year
• profit and loss statements, including quarterly and monthly statements if available
• evidence of payroll costs, where your policy covers payroll
• your lease, and any correspondence with your landlord about waiving, deferring or reducing rent
• the dates of and reasons for the closure
• whether your business was able to operate even in a reduced capacity
• details of any government grants or other financial support received

How much does business interruption cover cost?

Where business interruption is a section of a business pack, its cost forms part of the business pack price. Your price may depend on factors including your industry classification, your revenue and the stage of your business. Licensing, professional or contractual requirements may also influence the limit of insurance you consider, which may affect the cost.

Your existing controls and risk framework, your answers to insurers' risk questionnaires or proposals, and your recent claims history may also affect the total cost of your insurance. For business interruption, the details you give the insurer may also include:

• the sum insured and how it is worked out
• the indemnity period you choose
• your premises and their location
• the other sections you choose in the business pack

Our guide to business pack insurance cost covers the price of the whole package.

How upcover can help

upcover arranges business pack, industrial special risks and cyber insurance for Australian businesses. upcover works with 80+ insurance partners and can arrange quotes from a range of insurers.

• 70,000+ businesses covered across Australia
• 4.9/5 customer rating
• 80+ insurance partners

Get a business pack insurance quote through upcover.

Frequently asked questions

Can you buy business interruption insurance on its own?

Business interruption is commonly arranged as a section of a business pack, rather than bought on its own. For bigger or complex sites, it may be a section of an industrial special risks policy. Our guide to industrial special risks and business pack insurance compares the two.

In a business pack, business interruption may need to be selected as a section, depending on the insurer and your business. Cyber insurance may also include its own business interruption section.

Does business interruption insurance cover staff wages?

Staff costs may be part of a claim under the business interruption section of a business pack, depending on the policy. Business Queensland lists staff among the costs business interruption insurance may include. Whether wages are included, and for how long, depends on the policy wording and the indemnity period.

Does business interruption cover a government-ordered closure?

Whether the business interruption section of a business pack may respond to a government-ordered closure depends on the policy wording. The Insurance Council of Australia gives "the closure of premises by a public authority" as an example of an insured event, noting each policy varies. Where a closure is connected with an infectious disease, a communicable disease exclusion may apply.

Does business interruption insurance cover a cyber attack?

A business pack commonly excludes cyber incidents and data loss where there is no physical damage to insured property, unless you add cyber cover. Cyber insurance may include a business interruption section. upcover's glossary defines it as "Loss of income or increased operating costs resulting from disruption to normal business operations caused by a covered cyber event".

How is business interruption different from contents cover?

The contents section of a business pack is designed to cover business contents, such as equipment, furniture and stock, against insured damage at your premises. The same policy's business interruption section is designed to help cover lost income and ongoing costs while that damage stops you trading. Our guide to what business pack insurance covers explains each section.

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_{Written by upcover's editorial team. This article provides general information only and does not take into account your objectives, financial situation or needs. It is not financial advice. Insurance availability and cover are subject to underwriting and the terms, conditions, limits and exclusions of the relevant policy. Business interruption sections, their triggers and their limits vary between insurers and policies. Read the policy wording and its terms and conditions before deciding. upcover arranges insurance products with selected insurers and underwriters and does not compare all general insurers or insurance products available in the market.}