Emerging Business Insights
Protect Your Business Income From Third Parties’ Losses
JULY 1, 2025
Approximately half of all businesses that suffer a major property loss don’t reopen or fail within three years. This statistic should be concerning because most businesses can’t generate their usual revenue when a key third party whom they depend on experiences a property loss. The impact of a business interruption to a key supplier, major customer, or an anchor location due to a loss can be just as devastating for your company as if it suffered the loss itself.
Unfortunately, many companies overlook a critical element of property coverage: contingent business interruption. This coverage can protect their income when a key third party with whom they conduct business undergoes its own business interruption.
Contingent business interruption coverage extends your insurance coverage to reimburse lost revenue and pay ongoing expenses including payroll, rent, and other continuing costs when your business’s income has been interrupted due to a third-party loss.
Situations in which contingent business interruption can impact revenue include:
- Vendors — If key components or supplies that a manufacturer or distributor relies on come from a limited vendor group
- Customers — If a company’s key customers or client base can no longer purchase goods or services after suffering a loss
- Proximity — If a company depends on a nearby attraction or neighboring business that draws customers
Many business owners don’t know about this coverage because their insurance broker has overlooked it or simply neglected to discuss it with them. Other companies don’t have it structured properly to respond to their unique exposures, because most policies only provide low sublimits or exclude this coverage all together.
To illustrate the impact of this coverage, here are two claim scenarios showing very different outcomes.
A components manufacturer supplies its products to a handful of customers, one of which accounts for 60% of the manufacturer’s total sales. Unfortunately, this customer suffers a fire and closes operations for 10 months. During that time, this customer does not purchase any components from the manufacturer.
While the manufacturer carries business income and extra expense coverage on its own property, it does not have a contingent business interruption endorsement. The manufacturer cannot sustain the loss of income represented by a 60% decrease in sales, and must lay off most of its workforce and liquidate assets to stay afloat. Due to this, a competitor forms relationships with some of the manufacturer’s other customers.
A regional contractor specializes in building and remodeling custom kitchens and bathrooms for luxury homes. It depends on a sole cabinet shop renowned in the area for quality work.
When the cabinet shop is damaged by a tornado, several of the contractor’s jobs cannot be completed, while others can’t even be scheduled. While the customers understand that this situation is out of the contractor’s control, the delay causes the customers to cancel their projects. Fortunately, the contractor’s property policy includes a contingent business interruption endorsement, and the insurance company covers the lost income resulting from the cancelled contracts.
Bottom line: You need to be able to identify and understand the extent to which your own operations depend on the goods and services of other companies, then make sure you have the proper contingent business interruption coverage on your property policy.
How USI Can Help
USI Insurance Services understands the importance of structuring a comprehensive property insurance policy, including coverage for contingent business interruption. Any business whose income is wholly or partially dependent upon a third party should consider obtaining contingent business interruption coverage.
We look to soften the financial impact of events outside our clients’ control by:
- Understanding the impact of other businesses on their operations
- Having a business continuity plan
- Incorporating the correct policy wording for their unique situations
- Selecting limits and deductibles to optimize coverage and cost
In addition to the exposures discussed in this article, USI’s analysis of property insurance programs can identify other opportunities to reduce uninsured exposures and create premium savings. To learn more about the risk management services available through USI, email select.business@usi.com.
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