September 15 2015
Make sure you have a well thought-out policy
When considering your next business insurance policy the most important part is the fine print. Many people, particularly business owners, have recently learnt harsh (and expensive) lessons on their business insurance. The Christchurch earthquakes and North Island floods have been particularly severe on businesses, unfortunately catching many by surprise and many business owners have been ill-equipped to deal with the fall out. Having a robust business interruption (BI) insurance policy can go a long way towards protecting you and your business in tough times.
The purpose of BI insurance is to help businesses survive a loss of profit as a result of being forced to cease trading for a period of time, usually following a disaster. BI policies are generally linked to material damage insurance policies as they are triggered following physical damage to property which then causes interruption and a subsequent financial loss to a business. BI insurance is ultimately designed to restore a business to the same financial position prior to the loss being suffered.
Policy wording is important
The wording of your BI policy is of the utmost importance. You need to clearly understand what cover you need at the time that the cover is obtained, not at the time of the loss. Some of the key questions to consider are whether you’ll be covered:
- While your business premises are being repaired?
- If all your clients’ businesses shut down?
- If access to your business is disrupted because of a government-imposed cordon, eg: red zoning, not only because of physical damage?
- For multiple events?
These questions are just a small example of what should be considered so that your business stands the best chance of surviving lost profits and being affected by sudden, unforeseen costs.
Depopulation and indemnity periods
Two particularly pertinent BI issues are depopulation and indemnity periods. The former refers to the adverse effect of people or customers leaving an area and is particularly controversial and, although dependent on the policy wording, now not likely to be covered.
Meanwhile, the indemnity period refers to the period of time in which BI policies will operate. Commonly, policies operate for 12 months, which in many cases is simply not long enough for businesses to recover. Many businesses have been caught out by cover starting from the date the damage is incurred not from when a business closes. This can have a detrimental impact on business owners whose businesses, say for example, continue to trade immediately after an insured event expecting that a claim can be made later when repairs are necessary only to find that the indemnity period has expired. Some insurers are, however, offering deferment periods. These allow policyholders to begin their indemnity period at a later, more suitable date than when the loss was incurred. Other insurers are offering longer indemnity periods. Although these policy variations are likely to cost business owners more in the first instance, they could be well worth the investment in the future.
Getting the right advice
In terms of getting BI insurance advice, insurance brokers specialise in obtaining the right type of cover for their clients and assisting when the time comes to make a claim. As well, we can support you interpret policies, help you put forward a well presented claim and, if necessary, help resolve any dispute with the insurance company providing the cover.
Overall, the most important point is that you must take the time to read and fully understand your BI insurance policy, and make sure you seek advice when in doubt. Understanding what you and your business are, and aren’t, insured for is incredibly important.