Determining Business Interruption Losses for Small Business

Abstract

Business interruption insurance often referred to as lost profit or loss income insurance is written and purchased to protect a business for when its operations are interrupted and income is reduced due to the occurrence of a covered peril. The determination of the actual economic loss can be difficult and controversial. The loss computation depends on the determination of what the sales would have been had there been no loss event and what expenses should be subtracted from the estimated sales. In this paper, we discuss the issues with business interruption claims, and theoretically correct approach to measure a firm’s loss due to an interruption in operations from a covered peril. We present an example showing calculation of economic loss due to business interruptions.