Business Interruption Insurance – its underated importance
Why you should prepare for the unexpected.
Australia is home to many natural disasters. The devastating Victorian bushfires and Queensland floods shocked the nation as people struggled to imagine themselves having lost not only their homes but their livelihoods. Many business owners were ruined as the tragedies eradicated the hope of ever rebuilding the business, not solely due to physical destruction but to inadequate business interruption insurance policies.
Very few business owners would ever operate without property damage insurance, however the relatively unheard of business interruption insurance is often overlooked. While a business’ physical assets are protected with property damage insurance, it is the loss of income due to an insured peril that is protected by business interruption insurance. Some basic insured events include fires, floods, cyclones, storms and power outages.
The material damage caused by these incidents is clear, yet it is the unseen damage that usually causes the most harm to the business and its unstable future. Quite often the putting out of the fire or the draining of the flood is only the beginning of a business’ problems. Such catastrophic events frequently result in the following ‘unseen’ problems:
• A disorganised work environment, damaged property, plant and equipment can lead to a slow down or break in production.
• The business can experience a loss of market share as customers are forced to turn elsewhere and the subsequent need for excess funding to outsource work in order to retain customers and market share.
• Delayed or over budgeted refurbishing can take a large chunk out of funds and resources.
• The need to temporarily rent equipment and property plant.
• The redundancy payments for excess staff or alternatively the hiring of extra staff to assist in the renewal stage of the business both require extra funds.
The net income of the business will be altered by each of these problems, either due to reduced turnover or additional business expenses. Being able to manage the loss of business income can often become the decider between whether the business survives such an event or if it fails. The losses sustained through the interruption of the business are indeed usually a lot worse than the physical losses, thus it is imperative for business owners to get business interruption insurance!
Although the importance of business interruption insurance is clear, many business owners do not have an adequate insurance policy. The attitude of “It will never happen to me” along with seemingly complicated and confusing policies is what has led to the neglect of business interruption insurance. Policies vary between different providers however they should all generally provide cover for:
• Loss of Gross Profit
• Loss of Payroll
• Claim preparation costs
• Additional increased costs.
The industry in which you operate together with the business’ unique circumstances will all influence your policy requirements.