Business Interruption Claim Too Low? What to Check

A business interruption settlement can appear precise because it comes with spreadsheets, accounting figures and a loss adjuster's calculation. But the final number may still depend on assumptions that materially reduce the insured loss.

If the amount offered is substantially below the figure your business expected, the first task is not simply to demand more money. It is to establish exactly how the insurer arrived at its figure and where that calculation differs from yours.

A low settlement becomes much easier to challenge when you can identify the particular figure, adjustment or policy interpretation creating the shortfall.

Ask for the insurer's complete calculation

Do not assess the offer from the headline number alone. Ask for the underlying calculation and the basis on which it has been prepared.

Five areas deserve particular attention:

Which turnover figures were used?

Identify the comparator period, standard turnover or revenue figure and the source of the data.

How was gross profit calculated?

Check which policy definition, rate and uninsured working expenses were applied.

What trends adjustments were made?

Ask which trading or commercial circumstances caused the insurer to increase or reduce the expected result.

What indemnity period was allowed?

Establish the date on which the insurer says the insured interruption ended and the basis for that date.

Which costs and savings were included?

Check increased costs of working, continuing expenses and every saving or deduction applied to the claim.

Has the insurer used representative trading figures?

Historic trading results are often central to a business interruption calculation because they help estimate what the business would probably have achieved if the insured event had not occurred.

But simply using last year's numbers will not always produce a representative result.

Relevant evidence may include:

recent monthly or quarterly management accounts;
evidence of sustained turnover growth before the loss;
seasonal trading patterns;
confirmed orders or contracts;
forward bookings;
changes in premises or operating capacity;
new customers already secured;
known loss of customers unrelated to the insured event; and
other circumstances likely to have affected future performance.

The issue is not whether a more favourable forecast can be constructed. It is whether credible evidence shows that the insurer's calculation does not fairly represent the business's likely trading position.

Is gross profit being calculated on the right basis?

“Gross profit” under a business interruption policy may not mean exactly the same thing as gross profit in ordinary statutory or management accounts.

The policy can contain specific definitions of turnover, gross profit, uninsured working expenses, standard turnover and rate of gross profit. Those definitions need to be applied to the underlying financial information.

If your accountant's figure and the loss adjuster's figure are far apart, establish whether the disagreement begins with the financial data or with the way the policy formula has been applied.

Has a trends adjustment reduced the settlement?

Business interruption policies commonly allow historic figures to be adjusted so that the calculation better reflects what would probably have happened had the insured event not occurred.

An insurer may argue, for example, that revenue would have declined anyway because of falling demand, market conditions, loss of a major customer, capacity restrictions or another independent factor.

Equally, evidence of genuine growth or an unusually poor historic comparison period may be relevant to the calculation.

The important question is whether the adjustment is justified

A trends adjustment is not necessarily wrong merely because it reduces the claim. The issue is whether the adjustment follows the policy wording and is supported by evidence rather than assumption.

Has the insurer ended the interruption too early?

Reopening the premises does not necessarily mean the financial interruption has ended.

A business may reopen while still experiencing:

reduced operating capacity;
lost customers or contracts;
temporary premises or equipment;
supply or production restrictions;
staffing disruption;
delayed stock replacement; or
a gradual rebuilding of turnover.

Whether those continuing effects remain part of the insured loss depends on the policy wording, the evidence and the maximum indemnity period.

If the insurer has effectively used the reopening date as the end of the interruption, examine why that date accurately represents the point at which the insured interruption or interference ended.

Have increased costs of working been treated correctly?

Businesses frequently spend additional money after a loss specifically to reduce disruption or protect turnover.

This may include:

temporary premises;
equipment hire;
outsourced production;
additional transport or logistics;
temporary staffing;
overtime; and
other emergency measures used to maintain operations.

Recoverability depends on the wording of the particular policy. Economic tests, sub-limits and different categories of increased expenditure may apply.

Nevertheless, the calculation should make clear how each material item has been treated and why any amount has been reduced or excluded.

Has the insurer overstated savings?

Some expenditure may genuinely fall during an interruption and therefore need to be reflected in the calculation.

But many costs continue even when turnover falls. These may include rent, finance commitments, key salaries, insurance and other overheads.

Compare every significant saving in the insurer's calculation against what the business actually paid. An assumed saving that did not occur can materially reduce the settlement.

What if your accountant disagrees with the loss adjuster?

A substantial gap between two calculations does not, by itself, prove that the insurer is wrong. But it can expose the areas that need closer examination.

Compare:

the financial data relied upon;
the policy definitions applied;
the comparator period;
the trends assumptions;
the indemnity period;
the treatment of continuing expenses;
the increased costs allowed; and
the savings deducted.

The objective is not simply to choose the larger calculation. It is to determine which calculation is better supported by the policy and the evidence.

Free business insurance guide

The Business Insurance Claim Dispute Guide

Dealing with a rejected, delayed or underpaid commercial insurance claim? Our guide explains the issues businesses should consider before accepting the insurer's position.

It covers business interruption, underinsurance, warranties, non-disclosure, commercial property claims, loss adjuster disputes and evidence.

Read the Business Insurance Claim Dispute Guide

What evidence can strengthen a challenge?

The most useful evidence will depend on the particular calculation in dispute, but may include:

the policy schedule and full wording;
the insurer or loss adjuster's settlement calculation;
annual and management accounts;
VAT returns and sales records;
forecasts or budgets created before the loss;
confirmed customer orders and contracts;
evidence of business growth or seasonality;
records of additional costs incurred;
evidence of continuing fixed costs;
your accountant's calculation; and
correspondence explaining the insurer's adjustments.

Evidence created before the insured event can be particularly important where the disagreement concerns projected growth or planned future trading.

Before accepting the settlement

If the difference is commercially significant, make sure you understand the implications of accepting any payment described as full and final settlement.

If the position is unclear, ask the insurer to confirm in writing:

whether the offer is interim or final;
which elements of the claim it settles;
whether any part of the claim remains open;
which calculations remain disputed; and
whether accepting the payment affects your ability to pursue the balance.

How Insurance Dispute Service may help

Insurance Dispute Service can review the policy, insurer's calculation, loss adjuster correspondence and relevant financial evidence to identify where the apparent shortfall arises.

The aim of the initial review is to distinguish a general disagreement about the headline figure from a potentially supportable challenge to particular figures, assumptions or adjustments.

Where appropriate, we can explain what appears capable of challenge, what further evidence may be useful and the strongest proportionate route available.

Read more about our Business Interruption Insurance Claim Disputes service or our support for Underpaid & Low Settlement Offers .

Your free complaint options

You do not need to use a claims management company to complain to your insurer. You can complain yourself for free. If eligible, you can also refer an unresolved complaint to the Financial Ombudsman Service yourself for free.

Frequently asked questions

Can I challenge a business interruption settlement after the insurer accepts cover?

Yes. Acceptance of cover and agreement on the value of the claim are separate issues. A dispute can concern the figures, policy definitions, adjustments or period used to calculate the loss.

Is my accountant's business interruption calculation automatically correct?

No. Accounting evidence may be important, but the calculation also needs to apply the particular policy wording correctly. The useful exercise is to establish precisely why the accountant and insurer have reached different figures.

Can the insurer reduce the claim because the business was already declining?

Potentially, where the policy permits an appropriate trends or circumstances adjustment and the evidence supports it. The same analysis may also need to take account of genuine growth or an unrepresentative historic trading period.

Does the business interruption loss end as soon as the premises reopen?

Not necessarily. The answer depends on the policy wording, the maximum indemnity period and whether the insured interruption or interference continued after physical reopening.

What should I send IDS for an initial review?

Start with the policy wording and schedule, the insurer's settlement calculation, relevant financial information, your own calculation if available and the main correspondence explaining how the insurer reached its figure.

Official sources and further reading

This article provides general information, not legal, accounting or financial advice. Business interruption cover, calculation methods, complaint eligibility and available remedies depend on the policy and individual circumstances. No particular outcome or increase in settlement can be guaranteed.

Insurance Dispute Service