The earthquakes and their on-going impact are a timely reminder that every business needs to carefully think about the type and scope of insurance they need to mitigate risks to their operations.
Apart from general insurance cover, many businesses have taken the extra step of getting business disruption insurance. But do you know what it actually covers? When it comes to the fine print, definitions of disruption can cause headaches for policy holders. For example, what is the insurance liability if a business is able to quickly get back and running after a disaster, but infrastructure problems mean no customers can physically get to the business.
That is exactly the situation some businesses faced in Kaikoura. In Wellington, shops in Queensgate Shopping Centre were able to trade, but a cordon meant they and their customers couldn’t access their premises. In the Queensgate case, some of the business tenants still had to pay rent even though they were not likely to have access for months.
Standard business interruption insurance would not cover this particular set of circumstances. A policy would need to include what is known as a ‘red zone’ clause which allows a tenant to end a lease or have a rent holiday or decrease until they can get access to their premises.
Unfortunately, many business owners don’t know about these clauses and therefore, while they think they’re covered in the event of disaster, they’re actually still exposed. As many of the earthquake affected businesses can testify – having to pay rent on top of wages and supplier bills with no income can be devastating to a small business.
The other fish-hook to watch out for is around timing. Even if your insurance has a ‘red zone’ clause, you need to be aware of the stand-down period before the insurer will pay out and also ask the question around maximum amounts you can claim.
Every business is different – not only because of the products or
services they provide – but also because every business owner or owners are unique.
Crowe Horwath Risk Management Adviser Edward Isaacs says it’s important to check your needs and goals against what the marketplace is offering in terms of policies. “I find the most revealing comment I get from new clients is that if they’d only known the true extent of the risks and the full impacts of the policy they’d previously chosen, they could have saved themselves a lot of money and stress.”
To find out more about business insurance options, talk to your local Risk Management Adviser: Edward Isaacs.