Not worth the risk

Peter Switzer

How many days’ turnover would you lose if your premises were flooded by a burst pipe? If you’re not insured against interruptions to your business, you might have more than a storm in a teacup on your hands.

Insurance industry research reveals that seven out of 10 small businesses do not recover from major fire, storm or flood. Such reports always state that owners could be forced into bankruptcy simply by putting insurance in the “too-hard basket”.

For many small business operators, getting their head around business interruption issues at the start of their business can be just too hard. This is understandable given the pressures of running a small business, but the danger in not revisiting the issue is the business may not be covered for loss of future revenue in the event of a major disaster. Every day that a small business can't open its doors, it can potentially lose thousands of dollars and put people out of work, let alone affect the livelihood of the owner.

Business interruption insurance

Historically, business interruption insurance has been ignored by many small business owners. Business interruption insurance would cover a retailer if a water pipe burst and three days of trading were lost while the shop was fixed.

Accounting group CPA Australia has conducted surveys that reveal two-thirds of businesses considered inadequate insurance cover to be the greatest risk to their business. However, only one in three had considered plan B strategies in the event of an insurance disaster.

According to other surveys, close to one in two of Australia's small businesses have no business interruption insurance and one in eight has no liability insurance.

However, many owners do not actively decide not to take out business interruption insurance. There has been much focus on public liability and professional indemnity, but no mention of not having a safeguard in place for random disasters, which can cost a business money through being unable to operate, losing customers and possibly key staff.

By paying a relatively small premium annually for this specific risk, a business could avoid 10 times that lost from not being able to operate.

Just imagine the impact on your business (not to mention your personal life) from a natural disaster such as a severe storm, flood or bushfire. A sensible business strategy would be to list all potential risks to your business and then seek assistance from an expert to investigate whether policies exist to cover them.

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