This article is by Kevin Minnear, Head of Underwriting, Bspoke Lifestyle
Spring is traditionally the time of year when many businesses review operations, tidy up processes and prepare for the busy months ahead. For operators in the holiday and leisure sector, it is also a sensible moment to review insurance arrangements.
Whilst insuring buildings, machinery and contents is often front of mind, Business Interruption (BI) cover can sometimes receive less attention. Yet it can be one of the most important protections a leisure business has.
Why Business Interruption Matters
Business Interruption insurance is designed to keep a business financially afloat following damage to property that prevents normal trading. If a fire, flood or other insured event closes a site, income can quickly fall away – sometimes completely.
While insurers work to repair or rebuild the physical damage, BI cover replaces lost revenue during the recovery period, helping the business meet ongoing financial commitments such as wages, rent and loan repayments.
However, arranging BI correctly can be more complex than many policyholders realise.
Why Recovery Can Take Longer Than Expected
After a major incident, insurers will attempt to access the site to repair or reinstate the buildings, machinery and contents but delays can arise for a number of reasons:
Waiting for sites to be declared safe after fire damage
Flood remediation and contamination clean-up
Access challenges, particularly for rural or coastal parks
Planning permission or building regulation requirements
Environmental regulations or sustainability requirements
Shortages of materials or skilled contractors
Updated compliance requirements, such as hygiene or fire safety standards
In significant loss situations, it can take weeks before insurers and contractors can even begin the reinstatement process.
Understanding the Indemnity Period
BI policies typically operate with a maximum indemnity period. This is the length of time insurers will continue to pay for loss of income following a claim.
For leisure businesses, BI cover is often arranged on a gross revenue basis, with indemnity periods usually available at 12 months through to 24,36 and even 48 months.
Seasonal Risk for Holiday Parks
Holiday parks and leisure destinations are particularly exposed to seasonal interruptions. If a major loss occurs shortly before the peak season begins, the business may lose most – or all – of that year’s revenue.
If rebuilding and recovery take longer than expected, the following season could also be affected. In some circumstances, this could mean two years of disrupted income before the business fully recovers.
Selecting an appropriate indemnity period therefore requires careful consideration of the operational cycle of the business.
The Customer Factor
Another challenge is customer retention. If a park or leisure venue remains closed for an extended period, loyal customers may book with alternative operators.
Once habits change, customers may not automatically return, meaning recovery of trading levels can take longer than the physical rebuilding itself.
At the same time, delays relating to planning approvals, contractor availability or specialist equipment lead times continue to erode the indemnity period. Once the period expires, the claim stops – even if the business has not fully recovered.
Setting the Right Sum Insured
Choosing the correct sum insured is just as important as selecting the right indemnity period.
It may be tempting to simply multiply the current year’s turnover by the number of years of cover selected. However, this approach can underestimate the real exposure.
For example, if a policy begins in April 2024 with revenue of £500,000 and a 24-month indemnity period is selected, a sum insured of £1 million may appear appropriate.
But if a loss occurs later – for example in 2026 – the claim will relate to the revenue expected between 2026 and 2028. Businesses should therefore project forward, taking account of expected growth, inflation or expansion plans.
A Cost-Effective Safety Net
One positive point often overlooked is cost. Extending the indemnity period does not necessarily double the premium.
Insurers frequently apply reduced rates for longer indemnity periods, meaning extended protection can often be obtained for a relatively modest additional cost.
A Timely Reminder
Industry consensus suggests that around one in three businesses does not survive a major loss, with inadequate Business Interruption cover often a contributing factor.
As businesses head into spring and prepare for the season ahead, reviewing BI cover – particularly indemnity periods and sums insured – can be a valuable exercise. A simple “spring clean” of insurance arrangements today could make a significant difference should the unexpected happen tomorrow.
Opinions expressed in this article are that of Bspoke Lifestyle Group, based on our expert view of the market dynamics, unless specific additional source(s) is/are listed.
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