Disaster insurance is a must-have
The financial issues currently being faced by Kaikoura and Wellington businesses illustrate the importance of arranging quality business insurance and risk management planning.
The government has arranged some grants for small businesses affected, but has indicated they expect larger businesses to have done adequate pre-disaster planning and be able to cope without government help.
While this has put some larger businesses in a tough position, the government is right – businesses should really have planned for this, including adequate business contingency cover. All businesses should have learned from the experiences of firms after the Canterbury earthquakes.
These latest earthquakes highlight the need for all business owners, large or small, to spend time and effort to understand their risks, find a quality business insurance adviser and select a quality insurance policy. Insurance needs to cover all sources of risk, whether physical, like lack of customers due to a health crisis, or personal, like the owner suffering a heart attack.
This is not so much insurance as scenario planning – going through a list of all the things that can go wrong, whether earthquakes, or fires, or the death of a key staff member, and planning for what the business does when that event occurs.
Many events are not covered by the EQC or insurance, but will still have substantial impacts on a business.
All possible sources of loss need to be carefully examined and contingency plans made.
Policy triggers need to be understood. For example, some policies are very restrictive in that they require physical damage to the business premises.
The Canterbury earthquakes showed that businesses’ premises may be fine, but loss occurs because customers cannot get there due to damage to surrounding buildings.
Business insurance is a complex area, and insurance is just one of many solutions.
Other solutions include crosstraining staff, holding vital records in two or more locations and running a customer database so they can be informed of a temporary change of location. It’s no good being paid a lump sum if no one apart from the accounts clerk understands how to work the payments system.
Finding an adviser who is skilled and experienced in business insurance is vital and could save many businesses from bankruptcy.
Owners need to discuss their risk contingency solutions with their staff and their adviser. Those advisers need to find policies that suit – and explain any cover limitations.
Owners are in business to make a profit and should plan how they will manage their risks.
Dr Michael Naylor is an insurance expert with Massey University’s School of Economics and Finance.