Rethinking Business Interruption Cover in an age of supply chain disruption
We rarely see detailed data on insurance claims, but commentary across the industry indicates that UK businesses have increasingly leaned on broader forms of business interruption (BI) cover in recent years, particularly during major events like the Suez Canal blockage in 2021, Ukraine-related grain shortages in 2022, and Red Sea shipping disruption between 2023 and 2024.
In these scenarios, the losses weren’t caused by direct physical damage, but by blocked access, logistical breakdowns, or sudden shifts in trade conditions. These are exactly the types of situations modern BI policies are designed to address.
There is also clear momentum behind newer BI solutions. Parametric policies (which pay out based on predefined triggers like a port closure or delay) and cyber BI cover (which responds to digital disruption across logistics platforms) are gaining traction, particularly among firms seeking faster compensation and wider supply chain protection.
Though specific claims are hard to pinpoint publicly, insurers have clearly responded. They've updated underwriting guidance, expanded what triggers a BI payout, and placed greater focus on supporting businesses that invest in planning and resilience.
BI Insurance: protecting businesses during operational challenges
In response to these and other challenges, the UK insurance market has refined its approach to business interruption cover.
BI insurance is designed to:
- Offset lost income during downtime caused by delays, blockages, or restricted access to key materials.
- Support cash flow, especially for small and mid-sized businesses operating with limited financial reserves.
- Enable forward planning through scenario modelling and stress testing, helping companies understand how trade embargoes or supplier failure could impact operations.
As previously noted, BI cover has evolved beyond traditional triggers linked to physical damage. The emergence of non-damage BI policies marks a shift toward a more flexible and forward-thinking approach across the insurance sector.
In tandem, insurers are placing greater emphasis on proactive risk management. They now request more detailed supply chain data, such as the locations of critical suppliers and the digital systems businesses rely on. At the same time, policies are being reshaped to incentivise resilience, offering stronger terms to companies that invest in advance planning and mitigation, rather than simply reacting after disruption occurs.
Key developments include:
- Better risk forecasting with data tools: insurers are using advanced analytics to spot risks earlier. These tools can predict delays, price spikes, or supply issues caused by events like bad weather or political unrest. UK insurers, for instance, now use scenario modelling to help businesses prepare for events like trade embargoes or transport blockages.
- Faster payouts with Parametric Insurance: Recent global events have highlighted how certain businesses were able to secure swift compensation by relying on parametric insurance, an approach that enables rapid claims settlement based on predefined triggers rather than lengthy damage assessments.
- Covering key suppliers and indirect risks: BI policies are increasingly covering problems at supplier sites, not just the business’s own premises. UK manufacturers, especially in electronics, are now mapping out their extended supply networks so insurers can offer cover for indirect risks, like failure at a Tier 2 supplier (which supplies a business’s primary supplier).
Regulatory risks for the UK and its response
As the UK continues shaping its trade policies after Brexit, businesses and regulators face a balancing act: keeping trade open while protecting national interests. The Department for Business and Trade has raised concerns about critical supply chain dependencies. UK firms with international operations are adjusting how they source materials. Many are shifting to suppliers closer to home (near-shoring) or using two sources for the same product (dual sourcing), to reduce the impact of trade restrictions or geopolitical disruptions.
Planning ahead isn’t just wise, it’s a competitive advantage
Whether it’s caused by political friction, cyber-attacks, or a single port closure, disruption now moves swiftly through even the most diversified networks. For UK businesses, it’s no longer enough to react after the fact. A much more proactive and pre-emptive approach is needed.
Businesses that understand their risks, diversify their sourcing, and collaborate with insurers to develop robust recovery strategies will be in a significantly better position to manage disruptions – and capitalise on potential opportunities.
Visit our Commercial Combined Insurance page to contact us about Business Interruption Cover.
