Business interruption insurance: gross profit calculation, indemnity period, price

Business interruption insurance reimburses the gross profit your company no longer generates after a loss, plus the additional costs you incur to keep working, over an indemnity period set at inception, usually 12 to 24 months. Its price is measured in tenths of a percent of the insured gross profit, a few thousand euros a year for an SME. It is the cover that answers the real question a fire raises: how do you pay salaries and rent when revenue stops dead?

What exactly does business interruption insurance cover?

A fire destroys your workshop. Your property policy pays for the walls, the machines and the stock; but during the rebuild, your fixed costs keep coming in while sales have vanished. That gap is what business interruption cover fills.

Business interruption (BI) cover is an extension of the property damage policy that indemnifies the financial consequences of an interruption or reduction of activity caused by an insured physical loss: fire, explosion, water damage, storm, machinery breakdown, natural catastrophe. It compensates the loss of gross profit and the increased cost of working, over a maximum period agreed in advance.

According to France Assureurs, the French insurers' federation, the covered events mirror those of the property policy. No insured physical damage, no indemnity: that is the main limit of classic BI cover.

How is the insured gross profit calculated?

Gross profit, in the insurance sense, is not your accountant's gross margin. It is the difference between turnover and variable costs, the ones that disappear when activity stops: purchases of materials and goods, volume-related subcontracting, transport, commissions. Everything else (salaries, rent, depreciation, loan interest) is a fixed cost and therefore part of the gross profit to be insured.

Take an industrial SME: €4 million in turnover, €2.4 million in variable costs, hence €1.6 million of insurable gross profit (a 40% rate). If you forecast 15% growth and choose an 18-month indemnity period, the gross profit to declare is no longer €1.6 million but roughly €2.76 million (1.6 × 1.15 × 1.5).

Many policies include an adjustment clause: you declare a forecast gross profit, the insurer tolerates an overrun, often 20%, and adjusts the premium on the actual figure at year end. Without that clause, an underestimate exposes you to the average clause of Article L121-5 of the French Insurance Code: declaring €1.2 million against an actual gross profit of €1.6 million cuts the indemnity by 25%.

Worked example: what does the insurer pay after a fire?

Back to our SME: 40% gross profit rate, 12-month indemnity period, 3-working-day deductible. A fire destroys the production line in January. Activity is nil for three months, resumes at 50% for three months thanks to emergency subcontracting, then at 80% over the second half of the year.

Increased cost of working means the expenses incurred, with the insurer's agreement, to limit the drop in activity: renting machines or premises, subcontracting, transfers. They are reimbursed because they cost the insurer less than the margin they save. Without BI cover, this SME would have had to find €830,000 of cash to survive the year.

A property policy without business interruption is insurance that gives you back your machines but not your customers.

Which indemnity period should you choose?

The indemnity period is the maximum time during which the insurer compensates the drop in margin, counting from the loss. It does not end when the premises are rebuilt but when activity is deemed back to normal, within the chosen cap. France Assureurs notes that the minimum is 12 months for fire and explosion; policies commonly offer 12, 18, 24 or 36 months.

The right reflex is to walk through the worst case: building permit, reconstruction, delivery of a special machine, requalification, winning back customers who moved to a competitor. An SME with standard production equipment can settle for 12 months; a company dependent on a single site, bespoke equipment or regulatory approvals should aim for at least 24 months. The extra premium between 12 and 24 months is far below a doubling of the cover, because a long shutdown is unlikely.

How much does business interruption insurance cost an SME?

The premium is a rate applied to the insured gross profit. That rate depends on the sector, fire prevention (detection, sprinklers), the indemnity period, the deductible and the claims record. For classic fire-triggered BI, it most often sits between 0.1% and 0.5% of gross profit: our SME with €1.6 million of gross profit would pay in the region of €2,000 to €8,000 a year. Non-damage BI, rarer and more exposed, is priced higher: specialist players quote 0.5% to 2% of annual gross profit.

Two points to watch. The natural catastrophe surcharge, raised from 12% to 20% by a decree published in the Journal officiel on 28 December 2024, has applied since 1 January 2025 to commercial property and business interruption covers. And BI is declared every year: a company that has doubled in size without updating its gross profit is mechanically underinsured. It is one of the gaps we check systematically in a commercial property policy, before we even talk about price.

Non-damage business interruption: cyber and supplier failure

Here is the blind spot. Your ERP is encrypted by ransomware, your sole component supplier burns down, your hosting provider goes dark: activity stops, but none of your assets is damaged. Classic BI does not respond, because it requires insured physical damage to your own property. The Covid litigation settled by the French Cour de cassation on 1 December 2022 was a reminder: indemnity depends strictly on the wording of the policy.

Three answers exist. Supplier (or customer) extension is a BI add-on that indemnifies your lost margin when a physical loss occurs at a supplier or customer named in the policy, often capped at a percentage of gross profit. Cyber business interruption, included in a cyber insurance policy, indemnifies the margin lost after an attack or a failure of your information system, with a deductible expressed in hours of downtime, often 8 to 24 hours, rather than in days. Dependent IT provider cover (outage of a hosting provider or a critical SaaS) is a sub-limited option of those same cyber policies. For a scale-up whose production tool is software, it is this cyber BI that truly protects the margin (see our article on liability for code errors).

Frequently asked questions

Is business interruption included in a commercial property policy?

Not automatically. The property policy covers damage to assets and third-party liability; business interruption is an optional cover, priced on the declared gross profit. Many SMEs believe they are covered when they have only bought direct damage cover.

What is the difference between accounting gross margin and insurance gross profit?

Accounting gross margin deducts the cost of goods sold. Insurance gross profit deducts all variable costs and keeps fixed costs, including salaries. It is therefore usually higher and should be calculated with your accountant.

Can business interruption caused by a cyberattack be insured?

Yes, but not through classic BI, which requires physical damage. Cyber business interruption is obtained in a dedicated cyber policy, with an hourly deductible and a specific limit. The cyber extensions found in some property policies are often insufficient.

How long does the indemnity last after a fire?

Until activity returns to normal, within the chosen indemnity period, most often 12, 18 or 24 months. The insurer pays instalments as supporting documents come in, then a balance after the loss adjustment.

At Lesto, we start by reconstructing your insurable gross profit and a realistic recovery scenario before approaching the market, nine insurers per file on average, to adjust the indemnity period, deductible and extensions (supplier failure, cyber) to your real risk. Want to know whether your current cover would hold up against a fire or a cyberattack? Discover our commercial property insurance offer and request an analysis of your policies within 72 hours.