Severe Weather Is Getting Worse. Is Your Business Interruption Insurance Keeping Up?

If a catastrophic weather event caused your business to temporarily reduce or cease operations, would your insurance coverage enable you to recover? Such events have become increasingly common, making it essential to include Business Interruption Insurance in your property and casualty insurance program. 

Business Interruption Insurance coverage — also known as Business Income Insurance or simply BI — covers continuing operating expenses and lost income that:

• Results from direct physical loss or damage to insured property; 
• Was caused by a covered peril; 
• Significantly impairs operations or renders the business premises unusable. 

Another form of BI coverage, Contingent Business Interruption Insurance, provides protection in the event of a third party’s inability to perform operations causes your business to lose profits.

Heightened risk and lack of protection

There are two main reasons why it is critical for businesses to evaluate their insurance policies for coverage of business interruption:

1. Frequency of severe weather and climate events, particularly hurricanes, floods and wildfires. According to the National Oceanic and Atmospheric Administration (NOAA), there were 28 individual weather and climate disasters in the U.S. with $1 billion or more in damages in 2023 and another 27 such events in 2024. Last year’s losses, according to NOAA, totaled $182.7 billion, the fourth-costliest total of all time — just behind 2022, when losses from severe weather and climate totaled $183.6 billion. (In case you’re wondering, 2017 and 2005 rank first and second, respectively.)
2. Many businesses lack adequate coverage, especially small businesses. According to a 2023 survey by specialty business insurer Hiscox, “75% of small businesses in the U.S. are underinsured, and over 70% do not understand what business insurance covers.” That, no doubt, contributes to Federal Emergency Management Agency (FEMA) statistics showing that after a disaster, 43% of companies never reopen and 51% close within two years.

Reason No. 1 illustrates why businesses are likely to experience a weather- or climate-related event that will necessitate at least a temporary closure that interrupts normal operations. 

Reason No. 2 should prompt you to meet with an expert on business insurance to review your policies to ensure proper coverage and manage risk to prevent, or at least mitigate, property damage that could force or prolong interruption.

BI coverage and considerations

In a January 2025 blog post titled “Understanding Business Interruption Insurance: What Those Impacted by the LA Fires Need to Know,” the corporate and litigation law firm Procopio provides a primer for businesses that may be subject to an event that causes interruption to standard operations. The post begins with a summary of what most Business Interruption Insurance policies cover:

• Lost profits: Calculated according to historical and projected revenue.
• Fixed expenses: Ongoing costs such as rent or mortgage payments, as well as utilities, payroll and taxes.
• Extra expenses: Costs to mitigate the interruption, such as relocating operations or renting temporary equipment.

Procopio goes on to list key considerations for businesses affected by the LA fires, but such considerations are applicable to business interruption of various causes. 

Your considerations regarding business interruption should include:

1. Policy review: Business owners should review their policies to ensure they’re covered for their most significant risks, perils and hazards. As Procopio recommends, pay particular attention to definitions, exclusions and endorsements that could affect coverage, and check with your insurer before spending to repair or mitigate damages that may not be covered under your policy.
2. Documentation of losses and repairs: In the event of a loss, include financial records showing pre-loss income and expenses for both the current year and previous year; contracts canceled and sales opportunities lost due to the interruption; and extra expenses necessary to resume operations, such as additional payroll, relocation costs and use of temporary equipment. 
3. Civil authority and ingress/egress coverage: Many BI policies include coverage for losses resulting from actions by civil authorities, such as evacuation orders or road closures, even if the business itself was not directly damaged. In LA, for example, road shutdowns temporarily caused the closure of businesses otherwise unaffected by the fires. In western North Carolina last fall, massive flooding from the remnants of Hurricane Helene devastated roads, making even businesses that suffered little physical damage inaccessible to customers, clients and patients. 
4. Time limits and waiting periods: BI policies often include waiting periods before coverage begins, typically 48 to 72 hours. They may also have limits on the duration of coverage, usually 12 to 24 months. Understanding these provisions is essential for managing cash flow and adapting your business plan.
5. Coordination with property claims: BI and property damage claims are closely related. BI coverage can apply during the repair or reconstruction process, but because it is often limited in its duration, it’s important to begin construction as soon as possible and document how the project’s process affects the business’s operations. 

Contingent BI for third-party partners

Some policies offer Contingent Business Interruption coverage, which applies if a business suffers losses due to disruptions at a supplier’s or customer’s place of operations. An endorsement providing Contingent Business Interruption Insurance generally covers loss of income or profits caused by issues related to suppliers, vendors and other third-party business partners. 

If your business relies heavily on third-party suppliers or customers in fire-affected areas, CBI coverage may be a critical component of recovery. To assess your exposure to potential contingent business interruption, it’s essential to understand your supply chain and the impact disruption to it would have on your operations. Additionally, it’s important to review and understand your critical suppliers, vendors, third parties, etc. as well as any redundancies, or lack thereof, within your supply chain. 

Next steps

If you don’t have a business continuity plan, create one. According to FEMA, 75% of businesses lacking such a plan fail within three years of experiencing a disaster. Ready.gov, a FEMA website, is a good source of training videos and plan templates for creating a business continuity plan, while Travelers, one of Alera Group’s many insurance-carrier partners, outlines four main steps: 

1. Identify threats and risks. 
2. Conduct a business impact analysis identifying the people, places, providers, processes and programs most likely to be affected by those threats and risks.
3. Adopt controls for prevention and mitigation, including emergency response, public relations, resource management and employee communications.
4. Routinely test and improve your plan.

Business continuity planning and Business Interruption Insurance go hand in hand, with BI coverage providing the indemnification necessary for response and recovery from a natural disaster. A knowledgeable insurance professional will work with you to create a customized risk management program specific to your organization, rather than simply providing you with a one-size-fits-all business insurance policy.

To speak with an Alera Group professional, click on the link below.

CONTACT A BUSINESS INSURANCE EXPERT

About the author

Lisa Owens
Sr. VP, Complex Property Leader
Alera Group

Lisa Owens has 25 years of experience in the property and casualty insurance industry, with a specialty in Property Insurance. Before joining Alera Group as a senior vice president and national leader of its Complex Property practice, she served as a vice president for multiple national and international insurance brokerages. 

Contact information:

• lisa.owens@aleragroup.com
• Connect with Lisa on LinkedIn