Business interruption coverage is built on a simple premise: if a covered peril damages your property and stops your operations, the policy replaces the income you lose. It's essential coverage. It's also only half the picture for a modern manufacturer, because the modern manufacturer's biggest interruption risk usually sits somewhere else on the map.
BI versus contingent BI
Standard business interruption responds to a loss at your location. Contingent business interruption (CBI) responds to a loss at a location you depend on — a supplier who feeds your line, or a customer who takes most of your output. Same lost income, entirely different trigger. Without CBI, a fire two states away that shuts your line reads to your policy as "nothing happened here," and nothing gets paid.
The sole-source problem
Lean, single-source supply chains are efficient right up until they aren't. When one supplier provides a component with no drop-in substitute, that supplier's risk is your risk — you've just outsourced it without insuring it. The tighter and more optimized the chain, the more concentrated the exposure, and the more CBI earns its place on the schedule.
What contingent BI has to name
- Named vs. unnamed suppliers and customers — broader "unnamed" wording costs more but catches dependencies you haven't mapped.
- Direct vs. indirect — does coverage reach your supplier's supplier (the tier-two exposure that fails silently)?
- Covered perils — CBI generally follows the perils of the underlying property form; a flood-excluded supplier is a flood-excluded dependency.
- Waiting period and limits — set to the reality of how long a replacement source actually takes to spin up.
How to underwrite it honestly
CBI is only as good as the supply-chain map behind it. That means identifying single points of failure, quantifying the revenue tied to each, and setting limits and waiting periods against real recovery timelines — not a round number. Done well, it converts your most invisible exposure into a funded one. Done by default, it's the line item that isn't there when you need it most.