Business Interruption Insurance in the UK: Why Choosing the Right Indemnity Period Matters

Timing is Everything: A Smarter Approach to Business Interruption

Business interruption (BI) ranks as the second biggest risk for organisations, just behind cyber attacks and data breaches, according to Aon’s latest Global Risk Management Survey. Fires, floods, supply chain failures — any of these can bring operations to a halt and trigger serious financial losses.

That’s why BI insurance is a core part of most insurance programmes. But one element is often overlooked: the maximum indemnity period — the length of time coverage is available to protect your profit from the moment disruption begins until operations return to normal. Too short and businesses can find themselves underinsured, leaving balance sheets exposed and recovery efforts underfunded.

Income Protection That Reflects Reality

Standard BI insurance protects a business or organisation’s financial exposure – and critically their cash flow – from an insured event. It can cover not just lost profits, but also additional costs — like relocating to a temporary site, hiring extra staff or outsourcing production. When putting BI cover in place, businesses must decide how long they expect to require support after an unexpected event. This timeframe, known as the maximum indemnity period, is usually declared by insurers in six-month blocks ranging from 12 to 60 months.

Once the maximum indemnity period ends, the insurer stops paying. If the period is too short, the financial impact can be severe — especially for businesses still recovering months after the incident. Nonetheless, many organisations haven’t selected a period that reflects the true time and cost of getting back on track, leaving them underinsured and exposed.

Why Recovery After Unexpected Event Takes Longer Than Expected

Take the example of a manufacturer hit by a factory fire. Once the fire was out, the building had to be made safe before any structural assessment could begin. Demolition followed, then a tender process for contractors, planning permission for a rebuild and finally construction. It took 12 months before ground was even broken — a timeline that, for many businesses, would exhaust their entire indemnity period.

In this case, the site wasn’t the company’s main asset, but it was still a key part of business operations. Even with a 24-month indemnity period, the business was stretched to get back online.

This kind of delay is more common than many expect. Businesses often take an optimistic view of recovery — sometimes because they lack the data to make a more informed decision. Cost is also a factor, with some opting for shorter indemnity periods to reduce premiums.

However, given the critical role BI cover plays, it’s essential to reassess what recovery really looks like. That means understanding the full impact of disruption — not just on revenue, but on the additional costs that come with getting back to full strength.

Making Sure Your Indemnity Period Fits the Risk

Your maximum indemnity period should reflect the worst-case scenario — not just localised events like fires or floods, but broader disruptions that directly affect operations, such as damage to critical infrastructure or prolonged supply chain issues.

Getting it right means looking at two phases: reinstatement, when assets are rebuilt or replaced, and recovery, when income returns to pre-loss levels. That timeline will vary depending on the nature of your business — whether it’s a manufacturing site, data centre or office space — and needs to be informed by detailed risk assessments and a tested business continuity plan.

To build a realistic recovery timeline, ask:

• How long would it take to clear debris and assess the damage?
• What’s the process and timeframe for reinstating assets — including planning, approvals and construction?
• How long would it take to restore operations and revenue to pre-loss levels?
• What’s the likely impact on customer retention and how long might it take to win back lost business?
• Are all relevant stakeholders — finance, risk, facilities, supply chain and real estate — involved in shaping this view?

It’s also important to revisit your indemnity period every year at renewal. Ask yourself: has your business changed through acquisition, divestment or growth? Is the standard 12-month period still appropriate? In some cases, investing in contingency assets may offer a more cost-effective way to manage risk than simply extending cover.

Revisit Your Maximum Indemnity Period

To ensure your indemnity period reflects the true risk to your business, consider the following:

• Review your BI cover annually as part of your renewal process
• Understand how the indemnity period has been calculated — and whether it’s still accurate
• Document your business continuity plans to identify exposures and potential costs
• Involve all relevant stakeholders across finance, risk, operations, supply chain and real estate
• Quantify your final exposure to make informed decisions as a risk buyer
• Seek help from a risk consultant/insurance broker

To assess your organisation’s maximum indemnity period on its BI insurance, speak to your Aon contact for more details on how we can help ensure your organisation has the appropriate cover.