Business Interruption

Business interruption insurance (BI) — also called business income insurance or loss of profits insurance — is the cover that keeps your NZ motor trade business alive while it recovers from a major insured event. It addresses the reality that property damage creates two distinct financial losses: the cost of repairing or replacing what was damaged, and the loss of income while that repair is happening.

## Why Property Insurance Alone Is Not Enough

Property insurance replaces your building and equipment. But it does not replace your income while those assets are being repaired. For a motor trade business with:

- Rent or mortgage payments running at $5,000–$20,000+ per month - Staff wages of $20,000–$100,000+ per month - Equipment leases and loan repayments continuing regardless of trading status - Stock finance lines requiring servicing

...a 3-6 month closure can create a financial shortfall of $200,000–$500,000 or more, even if the property is eventually restored. Business interruption cover fills this gap.

## What NZ Motor Trade BI Cover Typically Includes

Gross profit replacement: The core of BI cover is replacing your lost gross profit — the revenue you would have earned minus the variable costs you no longer incur. This is calculated against your historical trading performance and projected figures.

Fixed costs: Rent, rates, utilities, loan repayments and similar fixed expenses continue during a closure regardless of trading status. BI cover funds these during the indemnity period.

Staff wages: Retaining skilled motor trade staff during a closure is critical — they are difficult to recruit and train, and losing them can extend your effective recovery time significantly. BI cover can fund wages for essential staff even when the workshop is not generating income.

Additional cost of working: Temporary premises, equipment hire, overtime wages, and other extraordinary costs incurred to resume or maintain trading can all be covered under BI, subject to limits. These are costs that property insurance does not address.

## Cyclone Gabrielle and the Reality of NZ Natural Hazard Risk

Cyclone Gabrielle in February 2023 served as a stark reminder of the business interruption risks faced by NZ motor traders in natural hazard zones. Workshops in Hawke's Bay, Tairāwhiti and other affected regions were closed for weeks or months, with many facing the compounding effect of stock damage, premises damage, and complete loss of revenue simultaneously.

For motor traders operating in flood-prone areas — including many of NZ's flat, river-adjacent industrial areas — BI cover is not a luxury but an essential financial risk management tool. The combination of property insurance (to fund physical restoration) and business interruption insurance (to fund the income lost during restoration) is the minimum standard for any motor trade business with significant fixed costs.

## Choosing the Right Indemnity Period

The indemnity period — the maximum time the policy will pay out — is one of the most important and most frequently underestimated choices in BI insurance. The correct period depends on:

Rebuild and regulatory time: How long would it take to fully restore your premises and pass any required inspections or consents? For a complex workshop with spray booth, hoists, and specialist fit-out, this can realistically be 12–24 months in a post-disaster environment where building contractors are in high demand.

Equipment lead times: Specialist workshop equipment — diagnostic systems, hoists, spray booths, alignment rigs — may have lead times from overseas suppliers of 3–9 months post-order. This extends the effective restoration timeline.

Customer and staff retention: Skilled automotive tradespeople are scarce in NZ. After 12 months of closure, many staff will have found alternative positions. Customer loyalty also has a time limit — after 6 months, customers form new habits with alternative workshops.

For most NZ motor trade workshops, a minimum indemnity period of 18 months is recommended. 24 months provides substantially better protection for the relatively small additional premium cost.