Broken Window Small Vincents

Partner article


While the impacts of lockdowns and restrictions on businesses has been front and centre for the past couple of years, we are still seeing businesses impacted by traditional business risks, including:

  • Supply chain incidents;
  • Product liability;
  • Event cancellations;
  • Equipment malfunctions;
  • Fraud or theft;
  • Fire, flood, storm and cyclone;
  • Accidental / malicious damage; and
  • Cyber events.

Many businesses insurance against these risks with a Business Interruption insurance policy, which is designed to cover the financial impacts on the business for a period of time, to allow the business to continue running and recover. That is, the policy typically covers the loss of gross profit and other additional costs incurred as a result of an insured event.

We regularly see a number of issues at claim time, which impact and delay businesses receiving the necessary funds to continue operating. This can have a significant detrimental impact on the business and its owners.

To overcome these issues and make the claims process as smooth as possible, we have the following top 5 tips:


1. Make sure the business has adequate insurance coverage.

The majority of businesses we review are under-insured. In our experience, this is the biggest issue reducing the sums businesses receive at claim time, and the most misunderstood issue.

Business operations and performance change over time, and it is important for coverage amounts to be regularly reviewed, to ensure the business is adequately covered. Underinsurance may occur where a policy was put in place several years ago and not reviewed as the business grows.

There is often also a cost-benefit trade off (considering the significant and increasing cost of insurance). It is important for business owners to understand the consequences of underinsurance in the event of a claim. Where a business in underinsured, the Insurer may reduce the amount they pay in the event of a claim.

The following example illustrates the concept of underinsurance and its consequences:

In broad terms, a business owner may select a sum insured based on what they think would be sufficient to get back on their feet (for example $600,000). However, an Insurer will look at the total level of insurance needed (for example $1 million). Where there is a shortfall, this implies the business owner is self-insuring the balance (i.e. $400,000). In this simplified example, it is assumed the business is self-insuring approximately 40% of any losses incurred.

To further illustrate this example and the consequences, if the business made a claim following a fire for $500,000 (being less than their $600,000 policy cover), the Insurer would reduce the amount it paid out, noting the business is underinsured / self-insured compared to the $1million of cover it needs. Accordingly, a sum of approximately only $300,000 may be paid (being 60% of the $500,000 claim). This may not be sufficient for the business to recover from the damage.

Conversely, some businesses may also be over-insured, resulting in paying excess premiums.


2. Document the losses and collect and keep supporting records.

Our free checklists to assist in collecting the relevant information can be found here


3. Apply the formulas set out in the Policy to calculate the claim.

In processing a claim, an Insurer will look to see their formula has been followed, and that the amounts claimed can be supported by other records and information.

We often see claims for a lump sum amount, with no further detail. While these amounts may be correct, without calculations set out in an appropriate manner and supporting information, there will be multiple requests for information and unnecessary delays in processing and paying the claim.

Each insurance policy details the definitions of specific coverage inclusions and exclusions, and coverage amounts applicable to the specific insured business. It is important to review individual policy details.


4. Consider changes in the business.

Making a simple comparison of pre and post claim event financial performance may not accurately quantify the businesses claim. For example, historical results would not accurately reflect:

  • a relatively new business experiencing significant growth.
  • businesses closed or significantly restricted by lockdowns in 2020 / 2021.
  • Winning a new supply contract or entering a new market.
  • A downturn in a particular industry or location.
  • A change in trends / fads / customer tastes and preferences.


5. Take steps to mitigate the loss

Steps to mitigate the loss include using due diligence and doing all things reasonably practicable to minimise any interruption of or interference with the business, to avoid or diminish the loss.

When preparing a claim for your business, it is important to work with experts that understands:

  • The precise operations of the business; combined with
  • The precise terms of the insurance policy and the formulas it contains for assessing the losses claimable (which may differ to the losses ultimately suffered); and
  • How to present this information in an appropriate format for the Insurer.


If you would like assistance with your claim preparation, or have an independent review of the loss adjusters report prepared by your Insurer, contact our office.

1300 766 563 | |

Our free preliminary Business Interruption Calculator can be found at