Take cover for losses

OVERLOOKING business interruption insurance could mean the difference between a business closing its doors for a couple of days or for good.

Most businesses insure their business assets but forget about insuring their income.

In many cases, asset insurance is required as part of any financing deal.

Business interruption insurance covers loss of income and the fixed costs that cannot be put off due to a loss of production.

St George Consultants owner Tony Jackson said business interruption insurance was traditionally linked to other insurance products such as fire and extraneous circumstances cover.

“Theoretically it could be set up as a stand-alone product covering any events that could affect a business, but in practice, insurers won’t allow it,” Mr Jackson said.

He said business interruption insurance was probably more important to small businesses than big businesses because they had fewer resources to fall back on in a crisis.

“But they also have less money to pay for insurance. It’s a catch 22,” Mr Jackson said.

“Those that do take out business interruption insurance often don’t insure enough.

“In the event of a fire or whatever, they may get a payout but it will probably be insufficient. Some expenses will occur despite a turnover downturn caused by a disaster.

“Payroll is probably the most important cost to meet. Otherwise the business has to lay off its staff and face the cost of retraining people later.

“You’re really insuring the business’ turnover, its gross margin.”

Smith Coffey Insurance Brokers director Rod Tancred said most insurance policies contained an average/co-insurance clause.

“For the types of cover most usually provided, the average/co-insurance calculation is arrived at by applying the rate of gross profit, revenue or rentals to the annual turnover, revenue or rentals,” Mr Tancred said.

“These factors need to be appropriately adjusted as provided for in the ‘trend of business’ or ‘other circumstances’ clauses.

“It is important to provide accurate information on sums insured and make appropriate allowances for trends so that in the event of a loss you are not being penalised for being underinsured.

“The interruption of business following a severe loss is a huge inconvenience to anyone but the ongoing interruption to the business after the loss can be devastating.”

SGIO national underwriting manager Greg Stewart said business interruption insurance could help a business get trading again and cover the advertising to inform customers of its changed circumstances.

“If a business is insured properly, it can be up and operating quickly,” he said.

“In some cases that operation is out of a marquee in the garden and strangely the turnover sometimes goes up because of the novelty value.”

Mr Stewart said business interruption insurance was affordable.

“We charge a premium of about 70 per cent to 75 per cent of the fire premium,” he said.

Small Business Development Corporation managing director George Etrelezis said small businesses needed to carry out a risk assessment of their business from the outset.

“Then they need to move to cover as many of those risks as possible through insurance,” Mr Etrelezis said.

“They should examine their insurance policies carefully to make sure they are covered for any eventualities.

“They also need to keep an accurate, up-to-date record of their turnover for insurance purposes so they have some figures to back up any business interruption claims.

“But risk management has to be affordable to the business.”

The Australian Institute of Chartered Loss Adjusters is holding a seminar on business interruption insurance in Perth on April 18.

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