Business Interruption Insurance

Business interruption (also called loss of profits or consequential loss) insurance replaces the gross profit you lose, and pays the extra costs of keeping the business going, while you recover from damage covered by your property policy. It can also pay continuing wages, rent and auditors' fees for preparing the claim. It is typically priced at about 0.25% of the gross profit insured a year.

No. Business interruption only pays when the loss of income follows physical damage covered by your property (fire) policy, so insurers sell the two together and the perils usually mirror each other. If the fire claim is not admissible, for example because riot was not covered, the business interruption claim fails too. Lost income without physical damage is not covered.

Insurance gross profit is usually your turnover less the costs that stop when trading stops, mainly purchases of goods and raw materials. It is higher than accounting net profit because it includes fixed costs such as rent, salaries and loan interest that continue during a closure. Use next year's expected figure, not last year's, or average can cut the claim.

Choose the longest time it could take to rebuild, refit, replace equipment and win back customers, counted from the date of the damage. One insurer offers 6 to 18 months and most set it case by case; one caps machinery breakdown loss of profits at 12 months. If you import machinery or need building approvals, 12 months may be too short; a longer period needs a proportionately higher sum insured.

Most property policies carry an 'average' condition: if you insure for less than the true value, the insurer cuts your claim in proportion. Insure a property worth KES 10 million for KES 5 million and a KES 2 million loss pays about KES 1 million. Review your sums insured at every renewal, especially stock that rises during busy seasons.

Only if you bought it. Standard fire and burglary policies usually exclude riot, strike, political violence and terrorism unless the extension or a separate political violence and terrorism (PVT) policy is in place, and a 2024 Kenyan case refused a riot claim for exactly this reason. Some SME packages include riot and strike under fire but carry a high excess on the PVT section.

Often, but not always. Many insurers list flood among the standard fire perils, while others treat it as a 'special peril' extension with its own conditions. After the 2024 floods, which produced at least KES 3.15 billion in flood claims, check that flood appears in your schedule, especially if your premises are low-lying or near a river.

Electronic equipment insurance covers computers, servers, POS terminals, telephone systems and medical electronics against sudden damage, including electrical faults, and can pay to restore data and the extra cost of working. Machinery breakdown covers sudden damage to generators, boilers, lifts, compressors and production machinery from electrical or mechanical failure, which fire policies exclude. Both are insured at new replacement value.

Kenya's claims benchmark is about 90 days. Some insurers publish faster targets once all documents are in: one processes claims of up to KES 300,000 within three working days, and others quote about seven working days on average for documented general claims. Large or disputed losses take longer because a loss adjuster must investigate. Draft IRA guidelines would tighten the timelines.

Insure each item at what it would cost to replace today: for equipment, the new price plus duty, transport and installation; for buildings, the cost of rebuilding, which a valuer can assess, not the market price of the property; and for stock, your highest normal level, not the average. Under-insuring triggers the average clause and reduces any claim in proportion.