The right coverage for that rainy day

OVER the last four months, Australia has been hit by bushfires and battered by storms, in some cases leaving businesses with little more than a smouldering pile of debris.

This is when you will inevitably turn to your insurance policy and try to work out what is covered and whether you were appropriately insured for the crisis you face.

However, discovering your business is underinsured when you need to make a claim is a little too late — unfortunately.

Sydney-based Peter Vickers Insurance Brokers Head, Simon Pilbeam, noted that as businesses grow new equipment and assets are frequently left uninsured, as those responsible for looking after insurance policies fail to inform their insurer.

“Inadequate insurance cover is often a problem in the event of fire damage,” he said.

“Despite fires, floods and cyclones being an annual feature of life in Australia, many people are not financially protected, therefore it’s also important to have the right level of business interruption cover so the risk of the business failing because it can’t operate is reduced.”

QBE’s Head of Small and Medium Enterprises (SME) Asia, Russell Derrick, warned the high prevalence of underinsurance in the SME sector posed a significant threat to the viability of businesses.

“If businesses are inadequately insured, in the event of a significant issue that damages the business, they often fail,” he warned.

Data from the Insurance Council of Australia found that up to 70% of underinsured, or uninsured, businesses fail after suffering a significant loss following a fire or flood.

While business insurance policies can include cover for tangible assets such as property and the costs of replacing equipment, they can also feature business interruption or continuity protection.

This insurance covers loss of revenue if the insured business is temporarily closed due to an insured event, such as a fire or flood, with the aim of leaving the business in the same financial position as if the loss had not taken place.

The cover starts from the date of the loss and extends to when the turnover levels are back to its pre-loss level.

Business interruption policies can cover ongoing expenses including payroll, financing and other fixed costs, disruption caused by power, telecommunications and water supply outages, revenue-earning operations, supply chain and manufacturing dependencies, and additional costs that businesses may incur to accelerate the process of getting a business back on its feet.

With any aspect of insurance, it is easy to be wise after an event, so working with a risk advisor or broker can help business owners assess the level of cover and the length of time they are likely to need to reestablish their business after an insured event, Gow-Gates Commercial Manager Rebecca Fleming said.

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