Business Interruption Insurance

Business Interruption (BI) insurance, also known as consequential loss insurance in the Indian market, is designed to restore a business to the same financial position it would have occupied had the interruption not occurred. In India, BI is almost always sold as an add-on or consequential loss section attached to a Standard Fire and Special Perils (SFSP) policy, meaning coverage triggers only when there is material damage to insured property from a peril covered under the underlying property policy. The policy compensates for loss of gross profit during the indemnity period — the time required to restore operations to pre-loss levels — and also covers increased cost of working, which are additional expenses incurred to minimise the interruption. Key policy parameters include the sum insured (typically 12 months of gross profit), the indemnity period (commonly 12 to 24 months), and any time excess or waiting period deductible. In the Indian regulatory framework, BI wordings are governed by the IRDAI and are based on adapted versions of international standard wordings. Businesses must be meticulous in calculating adequate sums insured, as underinsurance triggers the application of the average clause, reducing claim payouts proportionally. Post the COVID-19 pandemic, there has been significant debate in India about whether BI policies should respond to government-mandated lockdowns in the absence of physical damage. IRDAI has since worked with insurers to clarify policy wordings, and several Indian courts have adjudicated disputes that have shaped the interpretation of BI coverage in the country.