Industry intel suggests most small business insurance policies would fail to adequately cover a SME if forced to temporarily cease trading. Here’s why business interruption insurance deserves your close attention.
You could get your ute stolen. You could get your tools stolen. Your premises could burn down. Access could flood out. The electricity supply could fail. Business interruption takes on numerous scenarios and most of them are all too common in the construction industry.
The CGU Small Business Research 2016 report, which canvassed its small business customers, found less than a quarter had protection against business interruption, in spite of this being one of the most expensive types of claims at an average of more than $20,000 per claim.
Gallagher’s Head of Corporate Broking Mark Oatway, referring to similar findings by the recent Vero SME Index, said that lack of business interruption cover should be taken very seriously, as reports suggest that approximately 80 per cent of businesses that suffer a major loss enter administration within 12 months.
“In the small to medium business community the inclusion of business interruption cover is often an afterthought which becomes a harsh reality when they are faced with mounting costs and a business that is out of action for a period of time,” he warned, citing the disruption caused by the 2016 South Australia power blackouts as an example.
What specific damage would prevent you from trading?
But investing in business interruption insurance cover involves more than simply signing a contract. The wording has to work for your business operations. ‘The concept of “damage” is fundamental to business interruption insurance because without it there is often no cover,’ the law firm Gadens explains, adding that along with defining the scope of the term, the legal interpretation of wording should be considered in relation to scenarios that could trigger indemnity for a business interruption claim.*
The Interruption Underwriting Agencies 2017 Interruption Insurance Policy Wording guide includes a useful glossary of terms and their legal meanings, with explanations of what commonly used indemnity and settlement clauses cover, as well as – and this is the kicker – its exclusions.
For example, ‘the Insurer will not be liable for any loss under this Policy unless the Damaged property or any part thereof used by the Insured at the Premises for the purpose of the Business is insured against such Damage under a separate insurance policy’. In other words if IUA is the underwriter you have to have double cover to claim if your ability to trade is affected.
And there are other specific IUA exclusions, including but not limited to damage:
- to vehicles, mobile plant and equipment, or trailers while on a public highway or thoroughfare
- to mining property located beneath the surface of the ground
- to all machinery, electronic data processing equipment or electronic control equipment occasioned by any mechanical, electrical, electro‐mechanical, electronic or hydraulic malfunction or non‐operation of whatsoever kind
- as a result of contamination by radioactivity from any nuclear fuel or nuclear waste
- as a result of flood, tidal wave or high water
- as a result of an act of terrorism
- as a result of total or partial destruction or corruption or misappropriation of electronic data; total or partial inability or failure to receive, send, access or use electronic data for any time or at all; from any cause whatsoever, regardless of any other contributing cause or event whenever it may occur.
Drill down deep
But wait, there’s more. Australian insurance blogger Prof. Allan Manning’s 5-part Business Interruption series highlights a number of easily overlooked trouble spots in interruption cover, with case studies.
Areas where most business operators need help* include:
- time frames for downtime and the impact of weekends
- supply chain disruption
- the need to name all entities in businesses with multiple arms
- maximum indemnity periods
- correctly calculating gross profit
- total cost of rebuilding.
Getting the right business interruption insurance cover is a complex exercise. Don’t leave yourself vulnerable in the event you are forced to suspend operations for reasons beyond your control.
*One of Gallagher’s Australia-wide construction industry experts can assess your business in detail to identify your areas of exposure and ensure your business interruption cover meets your individual needs.