Who needs this solution
- Manufacturers – plant, stock and a long restoration period after an incident;
- retail and warehousing businesses – high stock values, water and fire risk;
- owners and landlords of commercial property – the buildings and the rent that is lost;
- hotels, restaurants and service businesses – operations depend entirely on the premises;
- companies with bank financing – insuring the security is normally a condition of the loan agreement.
The main risks
| Event | Direct loss (property) | Indirect loss (BI) |
|---|---|---|
| Fire at a production site | Building, plant, stock | Months without production; customers move to competitors |
| Flood or burst pipe | Finishes, plant, stock | Drying and repair – weeks out of operation |
| Storm, hail | Roof, facade, external plant | Partial suspension of operations |
| Burglary | Stock, equipment | Usually small; critical for specialist equipment with long lead times |
| Machinery breakdown | Production line, compressors, refrigeration | Downtime until spare parts arrive – often longer than the repair itself |
What the insurance can cover
Depending on the cover chosen, the policy can provide: buildings and interior finishes, production and office equipment, stock (including at fluctuating values), debris removal, and under BI cover the insured profit and standing charges during the period of downtime, together with increased costs of working to restore operations faster (temporary premises, hired equipment). A supplier or customer dependency extension can also be arranged – where your downtime is caused by an incident at a significant partner. The precise scope depends on the wording and the special conditions.
What a standard quote often overlooks
- Under-insurance. If the sum insured is below the reinstatement value, the payout is reduced proportionately – even on a partial loss. The rise in construction costs in recent years has made this very common.
- A BI period that is too short. Twelve months sounds generous, but for a production site the reality is design, ordering, delivery, installation and permits – often 18 to 24 months. This is the single most common mistake in BI cover.
- No BI cover at all. Many companies insure only the property – even though it is the loss of revenue that bankrupts businesses after a major incident.
- The definition of insured profit. The calculation basis has to match the accounting reality; the wrong basis creates a dispute at the time of a claim.
- Security requirements that do not match reality. Alarm, fire safety and monitoring requirements in the policy often do not reflect the actual position – and that only comes to light when a claim is made.
- Seasonality of stock. A fixed sum does not cover the seasonal peak; the answer is a declaration-linked value or a limit for the peak.
Decision table: what to check in a quote
| Question | Why it matters | What to check | What happens if you do not |
|---|---|---|---|
| Do the sums insured match the reinstatement value? | Under-insurance reduces every payout | The basis for the sums, the reinstatement value principle, indexation | A proportionately reduced payout |
| Is the BI period genuinely long enough? | Restoration takes longer than it seems | Equipment lead times, permit procedures, construction time | Cover ends while the downtime continues |
| What is included in the BI calculation basis? | It determines the real amount payable | The definition of insured profit against your P&L | A dispute and an inadequate payout |
| What security requirements does the policy impose? | An unmet requirement can affect cover, the claims decision or the amount paid | Alignment with the actual alarm and fire protection | A declinature on a technical breach |
| What sub-limits and deductibles apply by peril? | Flood, storm and water damage often carry separate conditions | The sub-limit table and the deductible for each peril | Unexpectedly little cover for the most frequent risks |
Information and documents required
- Schedule of property: buildings, plant, stock with values
- Description of building construction and fire protection
- Description of the business and the production process
- Financial data for the BI calculation (turnover, variable and fixed costs)
- An estimate of lead times for critical equipment
- The bank's requirements, if the property is pledged
- Loss history for recent years
What drives the price and the terms
The main factors: the type of business and its fire load, building construction (sandwich panels with a combustible core raise the price substantially), the standard of fire protection and security, the location (flood risk zones), the sums insured and the BI limit, the deductibles chosen and the loss history. A well-prepared risk description and fire safety in good order usually pay for themselves in better terms.
Typical exclusions
Normally not covered: wear and gradual deterioration, the consequences of poor repair work within the repaired part itself, unexplained shortage of stock (inventory differences), and losses arising from a material breach of the policy's security requirements. Standard policies exclude war and terrorism risks – where necessary those can be addressed separately (see the article on political violence insurance).
How I work with property and BI risks
I start by testing the sums insured and the BI period against reality – that is where the largest gaps hide. Then I structure the cover, obtain quotes from the leading insurers and compare them on sub-limits, deductibles and security requirements rather than on premium alone. For larger risks I arrange an insurer survey and help implement its recommendations. In the event of a claim I represent your interests through to payment.
A practical example
A typical situation (a generalised example, not a specific client's case): a production site is insured at book value, roughly half the real cost of reinstatement, and no BI cover has been bought at all. If the policy applies the under-insurance principle, the property payout after a fire can be reduced proportionately. Without BI cover, the downtime losses – during which wages, rent and loan repayments still have to be paid – would not be indemnified. Reviewing the programme with correct sums insured and a realistic BI period makes the cover far more predictable.
Frequently asked questions
What is the difference between reinstatement value and market value?
Reinstatement value is the amount for which the property can be rebuilt or bought new; market value reflects depreciation and market conditions. In insurance it is usually correct to use reinstatement value – otherwise the payout after an incident will not be enough to restore operations.
How long should the BI period be?
As long as full restoration genuinely takes – including design, permits, equipment delivery and installation, and winning customers back. For production sites that is often 18 to 24 months. I work the period out with the client from the lead times of the critical equipment.
Does BI insurance also cover downtime from a pandemic or a market crisis?
No – classic BI cover only responds where the downtime was caused by material damage insured under the policy, such as a fire. Market fluctuations, a fall in demand or epidemiological restrictions are not covered by this instrument.
The property is pledged to a bank – what does that change?
The loan agreement normally sets minimum insurance requirements and names the bank as loss payee for the secured part. I align the programme both with the bank's requirements and – more importantly – with the company's own real risks, because the bank's minimum does not protect the business itself.
Can a tenant also insure the premises?
A tenant normally needs to insure its own investment in the interior finishes, its equipment, stock and liability towards the landlord; the building itself is a matter for the owner's policy. I review the insurance requirements in the lease and split the cover so that there is neither duplication nor a gap.
Insurance broker, partner at SIA EURORISK. 18+ years in insurance. About me →
Methodology and sources
This page combines the Latvian legal framework with a broker's practice. The practical observations (for example, the typical gaps in cover) are Kristaps Račko's professional observations, not market statistics; the actual cover always depends on the chosen insurer's wording and the special conditions of the policy.
- Kristaps Račko's practice as a broker – assessing property and business interruption (BI) cover and the indemnity period
This page provides general information about commercial property and business interruption insurance and is not individual insurance advice. Actual cover always depends on the chosen insurer's wording, the special conditions in the policy and your situation – we will assess those together before any decision.