Changes to working practices could mean your organisation has more business interruption cover than it needs. Pete Rayner, public sector practice leader – Central and South West at Aon, outlines how cover requirements have shifted.
Business interruption insurance primarily picks up the additional costs incurred – or revenue lost – by an organisation when it experiences a property loss such as a fire or flood. With the pandemic driving changes in working practices, cover requirements will likely have changed too.
The key change is the increase in flexibility around where office-based employees work. Rather than do a five-day stint in the office, more people now work from home or remotely at least some of the time. This is great for work-life balance, but it can also have positive implications from a business interruption perspective.
Cost of working
Pre-pandemic, if there had been a fire in an office where 300 employees worked, it would have been normal to rent another premises to accommodate them while the building was reinstated. Now, it’s much more likely that these employees would either work from home or find alternative workspace within other buildings owned by the organisation.
Removing the need to rent another premises should mean it’s possible to reduce the level of increased cost of working cover included in an organisation’s business interruption policy. This should have a positive effect on the cost of cover.
Flexible working doesn’t always make it possible to wind back cover though. Some buildings, for instance schools, and waste disposal and recycling depots, are critical to a local authority meeting its statutory obligations to provide certain services: suffer a fire or flood and it will be necessary to relocate so the service isn’t disrupted.
What’s possible depends on each situation but could include portacabins to replace school classrooms or hiring an alternative location for a waste depot or working with a third party to maintain the service.
Indemnity period
The other aspect of business interruption that should be reviewed following the pandemic is the indemnity period. It’s incredibly common to underestimate how long it would take for a building to be reinstated after a fire or flood.
Where major work is required, it can take at least 12 months before a building contractor starts work. Plans need to be drawn up and approved; reliable contractors sourced; and the job put out to tender before work even begins. It may also be necessary to clear the site, including having any hazardous materials such as asbestos safely removed. Factor in all these stages and it’s not unusual to need an indemnity period of 36 to 48 months.
As well as affecting how long increased cost of working cover is in place, this will also affect cover for lost income, such as rent or revenue from services provided to other organisations. Where the loss of a building means the organisation can’t generate income – for example, housing stock affected by flood or a fire in a community hall that’s rented to local groups – having the right indemnity period will ensure these income streams are covered.
Business continuity plans
While checking business interruption cover is appropriate for your organisation’s needs, it’s also prudent to review its business continuity plans: anything drawn up before the pandemic is likely to be out-of-date. These plans dovetail with business interruption insurance and can help to inform the cover required.
Plans need to consider the impact of a major loss on the organisation and the possible solutions that are available. While the advent of flexible and remote working means there are potentially more options available to you, plans will vary depending on the type of building and the services that are being provided.
As an example, business continuity plans for a waste disposal facility might explore whether there was additional capacity within the organisation and, if not, whether it could turn to a neighbouring authority or third party to ensure it continued to meet its statutory duties.
Supporting your review
Our work in this space has found that many organisations haven’t reviewed their business interruption insurance cover levels since the pandemic. But reviewing cover could potentially save your organisation money as well as improving its resilience if it is hit with a major loss.
Where any savings are made, it’s an opportunity to consider emerging risks, such as cyber. A cyberattack or data breach can be just as disruptive and costly – if not more so – as a fire or flood. And, with it getting easier to secure cyber insurance, it could be a good time to consider insuring this risk.
Working with your broker – and the specialist insurers in this market – will ensure that, however your organisation has evolved since the pandemic, it has cover that meet its needs.
More information
To find out more speak to your Aon account manager or contact Pete Rayner at [email protected].
About Aon
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This article has been compiled using information available to us up to 01/09/2025.
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