Business Interruption After a Flood in Nepal: Does Your SME Policy Pay While the Shutters Stay Down?

Floodwater getting into a shop causes two losses. The first is easy to see: stock, counters, wiring, the building itself. The second is quieter. It is the trading income that stops the day you close and does not come back the day you reopen, because cleaning, restocking and winning customers back all take time after the water has gone.

Those two losses live in different parts of your policy, and only one of them is usually on the front page. If you have only ever looked at the property side of your cover, there is a real chance the income side was never bought at all.

What follows is about reading your own contract. Not a recap of the season's damage, not a set of numbers, just the questions that decide whether a claim exists and what it is likely to pay.

Material damage and lost income are separate covers

The property half is simple enough. You insure the building, stock, fittings and machinery at a declared value. When something happens, a surveyor prices the damage and the policy pays, up to the sum insured.

Lost income does not work that way. It is normally added as an extension or an endorsement, and it travels under several names. Business interruption, consequential loss, loss of profits. Same idea, different labels, and the label only matters because it tells you which clause to read.

So start by finding out whether it is there at all. Look for a line in your schedule referring to trading income, gross profit or consequential loss. If you cannot find one, and there is an exclusion mentioning interruption of business or loss of market, that is your answer, and the rest of this is about the other case.

Does it switch on without damage at your own premises?

Settle this before you read anything else.

In many commercial policies, business interruption is attached to the fire or special perils section. If yours is written that way, the extension only responds after an insured material damage event at your own address. No damage at your shop, no payout, however long you stay shut.

Denial of access cover, and extensions covering a supplier or a major customer, widen what counts as the cause of your lost income. They do not usually create the trigger on their own. Which means a flooded road that keeps customers away, or a supplier whose plant is underwater, can leave you holding a perfectly valid sounding business interruption clause with nothing to claim under.

Find the sentence that says what has to happen first. That sentence is the whole game.

Read it the way an insurer reads it

The schedule

What is insured, for how much, on what basis. Look for a separate line for business interruption. No line item, no cover, almost always.

Perils insured

Find flood by name, or inside a wider phrase such as storm, tempest and flood. Then check that the same peril applies to your trading income and not only to your property. Those can be two different lists in the same document.

Exclusions

Read these before the promises. Watch for wording about consequential loss, loss of profit, loss of market, interruption of business. An exclusion here with no matching extension is your entire answer in one paragraph.

Extensions and endorsements

This is where business interruption cover actually lives, if you have it. Compare the added wording against the figures in the schedule. An endorsement carrying no limit is not much comfort.

Conditions

Notice deadlines, proof of loss, your duty to mitigate, salvage, cooperation with the surveyor. These are obligations on you, and breaking one can reduce or defeat a claim you would otherwise have been paid.

Complaints

Turn to the back of the wording and find where a complaint goes. Save that address and email in your phone now, not during a flood.

What normally sits inside the extension

• Loss of gross profit or reduced turnover, meaning income you would have earned and did not.
• Increased cost of working, such as temporary premises, hired equipment or moving stock so you can keep trading.
• Denial of access or loss of attraction, where your shop is fine but customers cannot reach it, or the area around it has emptied out.
• Supplier and customer extensions, where the damage happened at somebody else's premises.

Whether any of these are included varies from wording to wording, and most of them still depend on insured damage somewhere in the chain. Check them one by one. Assuming is how people end up surprised.

Waiting period and indemnity period

The interruption is measured from the date of damage forward. A waiting or franchise period means the first stretch of the shutdown is not paid for. The indemnity period puts a ceiling on the whole thing, and when it runs out the payments stop whether or not you are trading again.

No useful article can tell you what those two periods should be for your business. They are in your schedule. What you can do is test them against your own restart time and your own cash. If the earliest realistic reopening is about as long as your waiting period, the cover only starts helping around the point where it begins to matter. If the indemnity period ends roughly when you expect to be back at normal turnover, there is no slack in it at all.

The awkward part is that the answer changes. A shop that could have reopened quickly a few years ago might need far longer now, if it holds more stock, employs more people, or depends on a supply chain that has got slower.

Gross profit is not the figure in your books

One definition is worth getting straight first. In business interruption wording, gross profit is usually not the accounting figure your accountant prepares. It is normally net trading profit plus your standing charges. Standing charges are the costs that keep running whether the shutters are up or down: rent, salaries, utilities, loan instalments, licence fees, and so on.

Set your sum insured by the accounting number and you will set it too low, and you will not find out until you claim.

Cover is usually built one of three ways. On a gross profit basis, on a chosen monthly limit, or on a limit tied to the indemnity period. Know which one you bought, because the way a claim settles follows from it.

Then find the average or underinsurance clause. If your declared figure sits below your real exposure, that clause reduces the payout in the same proportion. Insure half of what you should have, and a partial loss tends to settle at about half of what it cost you, despite the premium having been paid in full. There is nothing punitive in it. It is arithmetic, and it applies whether the shortfall came from carelessness or from a business that simply outgrew its paperwork.

Which is the reason to revisit the declared figure as turnover grows. Not once, but whenever something significant changes.

What you will be asked to prove

Proof of loss is a condition of most policies, so the paperwork question is not optional. Build the file before a claim, in a dry month, rather than reconstructing it afterwards. Insurers commonly ask for some version of the following, and requirements differ between companies and between wordings:

• Sales ledgers, POS records or the bill book
• Tax filings and returns
• Financial statements, audited or filed
• Payroll records and staff attendance
• Bank statements
• Purchase invoices and supplier records
• Stock registers
• A schedule of fixed costs: rent, salaries, utilities, loan instalments, licence fees
• Utility bills
• Repair quotations and dated photographs

If a claim is already running, some of this will be missing, and pretending otherwise wastes everyone's time. Pull what you have, tell the surveyor plainly what does not exist and why, and offer whatever stands in for it. A bank statement covering a lost sales ledger is worth far more than silence about the gap.

Notify, prove, mitigate

Notify early, before you know the final numbers. The notice deadline is a condition, and a late report can be disputed even where the loss itself is covered. Send it in writing and keep the acknowledgement.

Then mitigate. Trade from somewhere else if you can. Discount salvageable stock. Fulfil the orders you can still fulfil. Keep every receipt for what the workaround cost you, because that spend is often recoverable as increased cost of working.

Then cooperate with the surveyor. That report shapes the outcome more than any letter you write afterwards, and obstruction is never neutral. Answer the questions, hand over the file, and be at the inspection if there is any way to be there.

When the claim goes quiet

Most claims do not turn into disputes. They go slowly, which from inside a closed shop feels much the same.

The first move is a written request, not another phone call to the branch. Where does the file stand, what is still outstanding, and who is handling it. Ask for a named person, a claim reference and a date.

Your policy should say where a complaint goes. If it does not, ask the insurer in writing for its grievance channel and keep the reply. From there the route normally runs from the claims officer to the insurer's own grievance desk, and then outside the company to the regulator that supervises insurers. Check the regulator's current complaint procedure and contact details on its own website before you rely on any particular route, because offices, forms and email addresses do change.

Keep dated copies of everything: letters, emails, any part of the surveyor's report you are given, photographs, and a plain log of who said what and when. If it ever does reach a formal complaint, a tidy file helps you more than a forceful letter.

And if the amount in dispute is modest, weigh what legal advice costs against what is actually on the table before treating a lawyer as the next step.

One thing worth doing while the file is open: ask your insurer to confirm its position in a sentence you can keep. A short email saying the extension was never purchased, or that the indemnity period has run out, saves months of wondering.

If you find you have no business interruption cover

Plenty of readers will finish this and find nothing there. That is not a dead end, but it does move the problem from insurance to cash, and it is much easier solved in a dry month than a wet one.

Size a working capital buffer against your fixed costs rather than your revenue, and keep several weeks of it somewhere you can reach immediately. Talk to your bank about an overdraft or a working capital facility while the shop is trading normally, because credit is easier to arrange before a flood than after one.

It is also worth asking your insurer whether it writes any parametric or index based flood cover, where a payout is triggered by rainfall or river levels rather than an assessor's visit. Availability in Nepal is limited, the terms vary, and a parametric payout can be small next to what you actually lose. Still, finding out whether the option exists for a business your size costs nothing.

Questions worth putting to your insurer in writing

• Does my policy include a business interruption or consequential loss extension?
• Does that extension require material damage at my premises before it pays?
• What is the waiting period?
• What is the indemnity period?
• What is the sum insured, and on what basis is it calculated?
• Which records will you need from me if I claim?
• What is the deadline for notifying a claim?
• Who handles my complaint if the claim is delayed?

Send them in one email and keep the reply. Those answers beat any general advice, including this article. None of it replaces reading your own wording, but the reply will tell you which page to turn to.