Insuring Loss of Profits due to Business Interruption

In March 2011, the Tsunami in Japan devastated large areas of its North-East coast line, destroying hundreds of lives and thousands of homes. The devastation wiped out large swathes of Japan’s manufacturing industry and energy systems, crippling its infrastructure.

The highly regarded ‘just in time’ supply chain system showed its weaknesses, when months of supplies and parts were lost and capacity to produce them weakened for months afterwards. Japan’s people have shown their resilience by working together to regenerate the industries, with many factories nearly back to pre-quake capacity, though the shortages may still take a while to be filtered through the chain.

There has been some suggestion that the U.K. is currently experiencing a shortage of batteries, flash memory chips and microchips used in mobile phones and computers. Now may be a good time to consider what would happen if a company in your supply chain – whether a supplier or a customer – could not complete its part of a contract due to damage at its premises. For instance if you were a manufacturer reliant on components from a supplier who suffered a major fire, you may not be able to produce and supply your product to a customer, and may lose the business.

There is insurance cover available for this scenario under some commercial combined policies, offering automatic insurance cover for loss of profits resulting from business interruption or interference with your business due to damage at an unspecified customer’s or supplier’s premises, up to a given percentage of your gross profit figure. Cover can also be arranged specifically for any given customer or supplier with full details being provided to the insurer.

If your business is exposed to these types of business interruption risks, then contact your local insurance broker for advice on the most appropriate insurance protection to meet your needs.

Last reviewed 29/11/2011

To talk to an expert in your area and get a quote, contact your local insurance broker.