When motor traders think about insurance, they naturally focus on the obvious risks: vehicle stock theft, workshop fires, customer vehicle damage. What's often underestimated is what happens after a major loss — the weeks or months when your business cannot trade, but your fixed costs continue regardless.
This is where business interruption (BI) insurance comes in. For many motor trade businesses, it can mean the difference between surviving a major loss and not.
What Business Interruption Insurance Covers
BI insurance doesn't cover the physical loss — your property and stock policies do that. BI covers the financial consequences of not being able to trade while you repair and rebuild.
Specifically, BI insurance typically covers:
Lost gross profit — the revenue you would have earned during the closure period, minus the variable costs you haven't incurred because you weren't trading.
Continuing fixed costs — rent, loan repayments, equipment leases, insurance premiums and other costs that continue regardless of whether you're trading.
Staff wages — to retain your workforce during the closure, rather than facing recruitment and retraining costs when you reopen.
Additional costs of working — temporary premises, additional labour, or equipment hire to partially resume trading sooner than otherwise possible.
The Indemnity Period: Getting This Right
The "indemnity period" is the maximum time your BI policy will pay out. This is one of the most important decisions in structuring your BI cover.
For motor traders:
Most motor trade advisers recommend a minimum 12-month indemnity period, and 18–24 months for workshop-based businesses. A 6-month indemnity period is almost always insufficient for a major loss.
The Sum Insured: Don't Under-Insure
Your BI sum insured should be calculated as your projected gross profit for the indemnity period. Under-insuring is extremely common — and extremely costly.
Example: A workshop with $800,000 annual revenue, $300,000 variable costs, and $200,000 fixed costs has a gross profit of $500,000/year. For an 18-month indemnity period, the appropriate BI sum insured is $750,000 (1.5 x $500,000).
Many businesses set their BI sum insured based on what they paid last year, without reviewing whether it reflects current revenue. Work with your accountant and broker to set the right figure.
When BI Doesn't Apply
BI insurance has specific triggers. It's important to understand when it applies and when it doesn't:
BI applies when:
BI typically does not apply when:
Real-World Motor Trade BI Claims
The panel beating shop fire (Tauranga): Spray booth fire during late-night solvent spontaneous ignition. Workshop completely destroyed. 11 weeks of closure. BI claim: $242,000 in lost gross profit and continuing costs.
The Auckland flood event: Cyclonic flooding inundated a used car dealership's workshop and parts store. 8-week closure. BI claim: $180,000 covering wages, rent and lost revenue.
The Christchurch earthquake aftershock: A building damaged in an aftershock was tagged as unsafe. 4-month closure while structural repairs were completed. BI claim: $320,000.
In each case, BI insurance was the financial lifeline that allowed the business to survive a major event.
Reviewing Your BI Coverage
We recommend motor traders review their BI cover annually:
Contact our team to review your business interruption coverage. It could be the most important call you make before something goes wrong.