Why physical-damage cover alone is not enough
A Singapore commercial property policy — fire, Property All Risk (PAR) or a package policy — pays to rebuild the building and replace the equipment after an insured event. It does not pay:
- Rent under the tenancy agreement during the closure.
- Payroll for staff retained through the recovery period.
- Lease obligations on plant, vehicles and equipment.
- Supplier commitments and minimum-order penalties.
- Loan covenants and financing costs.
- Loss of gross profit and net profit during the closure.
Business interruption (BI) is the corresponding cover. It pays the cash gap between the insured physical-damage event and the moment the business has recovered to its pre-loss trading level — up to the chosen indemnity period.
How BI is bought
BI is almost always bought as an extension or section of the underlying property policy. The triggers must line up: the BI cover responds when an insured physical-damage event under the property policy occurs. Common Singapore constructions:
- Fire + BI — the cheapest combination, narrow triggers (only the fire-policy named perils).
- PAR + BI — broader triggers (any sudden and accidental physical loss not specifically excluded). Standard for businesses with significant operational dependency.
- Package policy + BI section — for SMEs, BI is included as a default section of the package with a defined indemnity period (often 12 months).
The indemnity period — set it to recovery, not reopening
The indemnity period is the maximum length of time the BI cover will respond. It starts at the moment of the insured event and ends when the business has recovered to pre-loss trading, or when the indemnity period expires.
Typical Singapore indemnity-period bands:
- 12 months — office tenants and light services. Recovery is largely physical reinstatement.
- 18 months — retail and F&B with operational fit-out, supplier relationships and brand recovery.
- 24 months — manufacturing, specialist plant and anything dependent on lead-time-heavy equipment replacement.
- 36 months — heavy industrial, where the rebuild and commissioning of bespoke plant genuinely takes that long.
The most common error: setting the indemnity period to the time to reopen the doors, not the time to full trade recovery. Reopening is the start of recovery, not the end. Customers move to competitors during closure, and getting them back can take months or years.
Calculating the BI sum insured
Two bases for the sum insured:
- Gross Profit basis — turnover less the cost of purchases that vary directly with turnover (raw materials, factored stock for resale). Includes all standing charges, payroll, depreciation, finance costs and net profit. This is the standard Singapore basis.
- Fixed Costs plus Net Profit basis — itemised list of fixed costs (rent, payroll, lease payments, insurance, loan interest) plus net profit. Useful for businesses where the gross-profit ratio is hard to calculate accurately.
Apply the chosen basis to the indemnity period — for a 24-month indemnity period on the gross-profit basis, the sum insured is two years of gross profit, not one. Some insurers apply a wider declared sum insured to allow for trade growth over the indemnity period.
Under-declaration triggers average and scales the claim payment down proportionately. Re-state the sum insured at every renewal against the most recent management accounts and the forward budget.
Common extensions
- Increased Cost of Working (ICOW) — the additional expenses to keep the business trading at the time of loss: temporary premises, rented equipment, overtime, expedited shipping, mobile units.
- Denial of Access — BI loss caused by physical damage to neighbouring premises preventing access to the insured site (police cordon, fire damage next door, structural concern).
- Supplier Extension — BI loss caused by an insured event at a key supplier's premises. List the key suppliers in the schedule.
- Utilities Extension — BI loss from extended failure of public utility supply (power, water, telecoms) beyond the basic waiting period.
- Loss of Attraction — BI loss when an insured event at a key anchor in the precinct reduces footfall (retail malls, Orchard Road).
- Notifiable disease at premises — some pre-2020 wordings; substantially restricted in post-2020 renewals.
- Murder, suicide and food/drink poisoning on premises — F&B-specific extension.
Common exclusions and gotchas
- BI loss not following an insured physical-damage event — mere drop in trade is not covered.
- Pandemic and communicable disease (excluded from standard wordings post-2020).
- Cyber events causing system downtime (covered by cyber liability, not BI).
- Indirect or consequential loss to the insured's reputation.
- Trade loss caused by the insured's own financial difficulties unrelated to the insured event.
- Period before the deductible / waiting period has elapsed (typically 48 to 72 hours for BI).