The Right Indemnity Period for Business Interruption Insurance

Picture this: your business has just faced an unexpected disaster. It could be a fire, a flood or even a devastating cyberattack. You’ve got business interruption insurance, so you’re covered, right? Well, maybe not - if you haven’t set the right indemnity period.

For small and medium-sized businesses (SMEs), choosing an appropriate indemnity period is one of the most critical decisions when arranging business interruption insurance. Let’s break down why this often-overlooked detail can make or break your recovery.

What is the indemnity period?

The indemnity period is the length of time your business interruption insurance will cover lost income and additional costs following an insured event. Essentially, it’s your safety net until your business gets back on its feet, but you have to choose the desired period in advance, when setting up your policy, so you need to think really carefully about what you require.

Standard options are 12, 24 or 36 months, but what works for one business might be totally inadequate for another.

Why it matters so much

1. Recovery takes time

Rebuilding or repairing premises, replacing equipment and restoring operations can take much longer than you’d think. Let’s say your premises are severely damaged by a fire. Even with insurance, obtaining planning permissions, sourcing contractors and completing repairs could easily stretch beyond a year. Will your chosen indemnity period cover that?

2. Your industry matters

Every industry has its quirks. If you’re in manufacturing, replacing specialised machinery can be a lengthy process. In retail, rebuilding customer trust after a prolonged closure might take months. For businesses like restaurants or vineyards, supply chain disruptions could add further delays.

3. Don’t forget lost customers

It’s not just about fixing physical damage. Winning back customers after a closure isn’t immediate and even when your doors reopen, your revenue might not bounce back to pre-disruption levels overnight. A longer indemnity period gives you breathing room to rebuild your customer base.

4. Hidden delays

Think beyond the initial crisis and what might arise afterwards. Regulatory approvals, workforce recruitment or even legal challenges could prolong your recovery, and businesses often underestimate how long it takes to be fully operational again.

The risk of undervaluing your indemnity period

Choosing a short indemnity period to save on premiums is tempting but risky. If your coverage ends before your business recovers, you’re left footing the bill which could result in having to cut corners, taking on debt, or, worst-case scenario, closing your doors permanently.

How to get it right

1. Assess your risks

Consider the worst-case scenarios. What’s the most time-consuming aspect of your recovery - repairs, supply chain stabilisation or customer retention? Build your indemnity period around the details of this timeline, taking everything into consideration.

2. Consult your broker

An experienced broker, like Ascend Broking, can help you map out realistic recovery timelines and choose a suitable indemnity period. They’ll also factor in industry-specific challenges and help you avoid common pitfalls.

3. Think long-term

It’s better to err on the side of caution. A slightly higher premium for a longer indemnity period is a small price to pay for peace of mind.

Real-life examples

We’ve seen clients who initially opted for 12 months regret it when unexpected delays stretched their recovery to 18 or even 24 months. On the flip side, businesses with a 36-month indemnity period often feel grateful they planned for the long haul, especially in industries with complex supply chains or regulatory requirements.

Setting the right indemnity period isn’t just a box-ticking exercise, it’s a cornerstone of your business resilience strategy and is vitally important. Take the time to assess your needs, consult experts and plan for the unexpected. After all, the right coverage could mean the difference between bouncing back stronger or shutting the doors of your business for good.

Other blogs which may be of interest

Business interruption - A deeper dive

Business interruption and AICOW cover - Everything you need to know

At Ascend Broking, we’re here to guide SMEs through these crucial decisions, offering tailored advice and ensuring your policy is fit for purpose. If you have any questions, get in touch with us today on 01245 449060 or email info@ascendbroking.co.uk.

Let’s make sure your business interruption insurance truly has you covered!