Businesses are exposed to unexpected circumstances every day, so there’s no point thinking disaster won’t strike you. Karin Brawn exposes the risks and outlines how businesses owners can ensure they’re properly covered, so business won’t be interrupted even when the worst happens.
Severe storms in NSW during June left many small business operators out of pocket and temporarily out of business, but this didn’t have to be the case.
At the height of the wild weather in the Hunter Valley, thousands of small businesses were without power and winds gusted up to 100kmh, prompting about 350 calls to the State Emergency Service in one night.
Business owners struggled to protect their livelihoods, sandbagging and nailing things down in an effort to salvage whatever they could before it was washed or blown away.
If you think it can’t happen to your business, then think again. How much you, your staff, suppliers and customers suffer after a serious business interruption is entirely up to you.
Steve Markey, managing director of Newcastle-based Markey Insurance Brokers, says some small businesses were hit particularly hard in the storms. "I’ve got a shop on the corner that sells specialist ski gear. Normally they would claim for $100,000, but this one will be more like $1 million. They’ve lost all their stock. It’s a seasonal business and they will have big trading hits."
To avoid interruption to your business, you need to ask yourself the following:
• What inventory do I have in the workplace?
• How much equipment?
• How much would replacement cost?
• What would happen to the business, my staff, customers and suppliers if a disaster forced me out of the building temporarily?
According to the National Insurance Brokers Association (NIBA), small and medium-sized enterprises (SMEs) are especially vulnerable to natural disasters, as most lack the reserves to deal with a serious disruption.
Noel Pettersen, CEO of NIBA, says 70 percent of uninsured and underinsured small businesses affected by earthquake, fire or storm don’t recover. "Small business owners are dangerously under-prepared when it comes to protecting their assets, income and employees. All too often that fact isn’t clear until they need to make a claim, at which stage they are facing enormous costs to cover their loss."
Getting the right insurance before a disaster strikes isn’t always easy, particularly for those in niche industries. Big insurers and call centre operators offering standard commercial policies lack the skills required to cater for individual industries.
Calculating the net value of assets, identifying potential risks and assessing how to minimise the effects of a disaster takes time and is often beyond the expertise of small business owners and managers.
And with so many policies on offer, each one different to the next, how do you know which is best? Will it cover you when the next storm, cyclone or bushfire strikes? What is not covered, and what is in the fine print?
Without the right advice, the onus is on business owners to calculate the cost of rebuilding their operations or replacing tools and equipment should a natural disaster occur. Most simply fail to keep pace with higher building or replacement costs.
In fact, the cost of replacing tools and machinery following a loss, transport costs, production costs due to import delays, and alterations needed to comply with standards are among the leading causes of underinsurance.
A visit to an insurance broker can clarify all of these matters.
A specialist broker is available for every industry, no matter how small or unusual. Brokers weigh up the risks and level of protection required by the industry, consider legislative changes (such as mandatory insurances) and assess how they affect the sector, and take licensing requirements into account as well.
Brokers also understand a small business’s time constraints and the overwhelming number of insurance policies available. With access to numerous commercial insurance products, they have the flexibility and know-how to choose the best policy at the best premium, covering the specific needs of small business.
An insurance broker should provide you with realistic options, not just choices, for making educated decisions. Brokers are registered professionals, subject to industry codes and regulations similar to those of other small business ‘partners’—accountants, lawyers and financial advisers.
And like a lawyer or accountant, an insurance broker is your advocate, working for you rather than the insurance company. A broker will make sure you have adequate levels of cover for your particular risks. If you don’t know all your risks, why not take advantage of a risk assessment offered by brokers to find out how you are exposed?
Forty-two percent of Australia’s small businesses have no insurance against business interruption, so a loss of income in the event of a disaster is a very real possibility.
Such insurance provides cover if a business is interrupted through damage to property by fire or other insured perils. It provides cash flow to meet your ongoing expenses and maintain expected net profit.
Fire and perils insurance is also essential. This covers buildings and their contents against fire and other perils such as lightning, explosion, malicious acts, earthquake, storm and water damage.
But before you buy a policy, here are some important tips from the Insurance Council of Australia:
• The cost of removing debris from your home or business after destruction by wind, storm or cyclone may not be covered under the policy.
• Conditions may apply if you need to temporarily set up your business in another building.
• Most insurance companies have a fixed limit for food, product or perishable goods spoilage when fridges and freezes thaw due to power failure.
• The cost of recovering livestock and repairing fences in rural areas after a natural disaster may not be covered by some policies.
A broker can also help you through the claim process. They are often at the front line and very much hands-on. They organise documentation, lodge the claim and arrange for assessors to visit the business.
One broker in the Hunter Valley demonstrated this after the devastating storms. He took calls late into the night from policyholders and helped arrange alternative accommodation when homes were badly damaged.
"I had the office phone diverted to mobile after hours so clients had someone to talk to. I was getting calls at midnight. All they wanted was someone on the other end of phone—a reassuring voice."
Don’t be at the mercy of government grants and charitable handouts if your business is jeopardised. With a tailored insurance solution a broker can get your business up and running in no time. Go to www.needabroker.com.au to find a broker near you.