Business interruption insurance in NZ

Business interruption cover deals with the financial effect of an interruption, not the cost of repairing the damaged building, stock or equipment. Business.govt.nz explains that the cover can apply when an event insured under a commercial property material damage policy, such as fire, natural disaster or burglary, interrupts the business and causes a loss.

The policy schedule and wording still decide the trigger, what is measured, the maximum amount, the period of cover and any exclusions. Some policies include extensions for events away from the insured premises, but those extensions are not a general promise that every supplier, customer, utility or access problem is covered.

A useful way to read business interruption insurance is to begin with the event, then follow the financial consequences. If insured physical damage stops or reduces trading, the material damage section may address the property loss while the business interruption section may address defined income loss and additional costs.

That link matters. A voluntary closure, a general fall in demand, a key person's absence or a cyber incident may not meet a standard property-linked trigger. Separate wording or another type of cover may be needed. Do not rely on the label alone; ask where the trigger is written and what evidence would show that it occurred.

Business interruption policies often refer to gross profit, gross income, wages, fixed expenses or increased costs of working. These terms can have policy definitions that differ from everyday accounting language. The figure shown in a set of accounts should not be copied into an insurance schedule without checking the policy formula.

The Insurance Council of New Zealand explains that a business may still need to pay staff, rent and power while it is interrupted. It also gives examples of extra costs that may help maintain income, such as using contractors or temporary premises. The actual policy decides which costs qualify, how savings are treated and whether approval is needed before extra spending is incurred.

The indemnity period is the maximum period over which the policy can measure a covered interruption, subject to its terms and limits. It should be considered against the time needed to repair or replace property, obtain consents, replace specialist equipment, restock, retrain staff and rebuild normal sales or production capacity.

Reopening the doors is not always the same as returning to the expected level of trade. On the other hand, choosing a longer period does not guarantee that every loss throughout that period will be paid. The event, loss and policy calculation still need to fit the wording.

Current records make the discussion more reliable. Bring recent financial statements, management accounts or revenue summaries, payroll, rent and finance commitments, major supplier and customer dependencies, stock levels, equipment lead times and the existing policy schedule. Separate confirmed figures from estimates.

Business.govt.nz recommends reviewing insurance needs at least annually and specifically warns against letting business interruption cover roll over unchanged when revenue is growing. A review is also useful after moving premises, adding equipment, changing suppliers, hiring staff, taking on a major contract or changing the way the business earns income.

Ask for important explanations in writing and keep them with the policy schedule. FMA guidance on general insurance encourages regular reviews and written answers about available options and the implications of change. Personal recommendations should only follow a review of the business, the policy wording, the budget and the relevant accounting information.

This article is general information, not a coverage opinion or a claim assessment. An insurer, adviser, accountant or claims specialist may need to confirm different parts of the answer for a particular business or event.