Contingent Business Interruption: The Coverage Most Manufacturers Skip

A manufacturer can have a fully insured, undamaged facility and still lose months of production because a single supplier had a fire. Standard business interruption will not respond. Contingent business interruption is the coverage that does, and most manufacturers do not carry it.

Business interruption vs. contingent BI

Business interruption replaces income lost when a covered peril damages your own property and halts your operations. The trigger is direct physical damage to your facility.

Contingent business interruption extends that protection to income lost when a key supplier or key customer suffers their own covered loss that disrupts your business, even though nothing happened at your plant.

Where the exposure concentrates

The risk lives in concentration. A sole-source supplier of a critical component, or a single customer representing a large share of revenue, turns someone else's loss into your loss.

If your only supplier of a key part has a fire, your production stops while you scramble for an alternative. Contingent BI is the form that responds to that interruption.

Who should carry it

Any manufacturer with single-source suppliers, sole-source components, or customers representing more than roughly 20 percent of revenue should evaluate contingent BI seriously.

Sizing it requires mapping the actual dependency: which suppliers and customers, what lead time to replace them, and how much income is at risk during that window.

Key takeaways

• Standard BI requires physical damage to your own property; contingent BI responds when a supplier or customer is hit.
• Single-source suppliers and concentrated customers create the exposure.
• Manufacturers with sole-source parts or a customer above 20 percent of revenue should evaluate it.