Two fires recently in the headlines are likely to force small and medium companies to take a closer look at the type of insurance they have to protect their business in the event of such a disaster.

The large fire at Buncefield Oil Depot in Hemel Hempstead near London in December, which caused many nearby businesses to stop trading temporarily, should encourage companies to take their business continuity planning more seriously, according to insurance brokers Alexander Forbes.

Closer to home, the fire at C&D Foods in Edgeworthstown, Co Longford, has also raised questions about the types of insurance companies must have to avoid irrevocable financial damage.

It is standard practice, but not a legal requirement, for businesses to have property insurance to compensate for damage caused to the building and contents. Most firms will also have an employers' and public liability policy that will cover the cost of claims made by staff or members of the public who are injured on site.

But to protect their profits, companies need to have another type of cover known as business interruption insurance.

This type of policy is quite common among both large and small businesses, says Michael Horan, non-life manager at the Irish Insurance Federation (IIF).

"Say your premises is burnt down and is out of action. Even in a minor or medium fire, you could be out of business for three or four weeks," he says. During this time, the company may not be able to receive essential products from important suppliers and, as was the fear at C&D Foods, it may be unable to service the contracts that keeps it in business.

But according to leading brokers, businesses often do not look closely enough at the terms of the business interruption cover they buy.

"It is the one area that doesn't always receive as much attention as it should. They insure against losses for a period of 12 months, where maybe a 24 or 36-month period might be appropriate," says John Bissett, head of corporate brokerage at Coyle Hamilton Willis.

"The key is to ensure that there is cover for loss of earnings until the business gets back to where it was in terms of profits, not just for the time that it is out of business." Loss adjusters would use the profits and turnover for the previous year to estimate losses.

In a factory fire such as that at Edgeworthstown this could be important, as much of the loss of earnings could be caused by the termination of contracts that are then not renewed even when the building is ready to re-open for business.

"A basic business interruption policy does not provide cover for incidents which do not result from damage to property - and these are more common that you might think," says Kieran McHugh, head of Alexander Forbes' Dublin office.

"If a customer was put out of action and it no longer required your services, then you would not be covered unless the right policy extensions had been included."

The fire at Buncefield, the largest seen in Europe for over 60 years, is expected to result in £50 million (€73 million) of property claims from businesses located close to the oil depot and business interruption claims in excess of £20 million.

Businesses close to the Buncefield fire that had the right type of "denial of access" cover may have a valid claim for loss of earnings for the period after the fire. Companies that did not have this policy extension will have lost out.

Incidents that are not "damage events" may not be covered at all. If the premises were to be cordoned off as part of an investigation into a fire, then business interruption cover might not kick in, according to Alexander Forbes.

Continuity planning is essential, especially for smaller businesses that lack resources such as alternative premises that might help them cope in a crisis.

It is also important for companies to regularly review their property cover, in light of the escalating value of commercial sites, to avoid being underinsured.

In the Republic, however, the escalation of commercial insurance premiums between 2000 and 2003 and the refusal of insurance companies to quote certain high-risk businesses forced many small businesses to self-insure, putting aside a fund to cover minor claims.

Some larger companies also opted to take on some of their risks themselves, says Bissett. A handful of the smaller companies were caught out by self-insuring and went under when they couldn't recover from the unexpected.

There has been some respite for small business of late. Commercial insurance premiums have been falling for the past two years, the IIF's Horan claims. "They are still falling," he adds.