When Cyclone Debbie swept across Queensland and Northern NSW in March 2017, the damage to homes, farms and businesses ran into the billions. But while the initial focus has been on the damage to buildings, crops and infrastructure, business owners also face a loss of income until repairs are complete and they can resume normal trade.
Cyclones are one of the more dramatic causes of financial loss, but they are not the only threat to business as usual. If your small business was unlucky enough to be damaged by severe weather, fire, flood or a temporary closure due to a local event, have you thought about how you would cover the cost of lost revenue and profits while you get back on your feet?
In the case of minor disruptions, you could be up and running again within days, but that’s not always possible. In the aftermath of Cyclone Debbie, Daydream Island was so badly damaged it announced it would remain closed for a year.
Yet a recent survey of 500 small to medium businesses by CGU found that one in four would not survive if they had to close their doors for three months. Worryingly, fewer than 25 percent of those surveyed were insured for an interruption to their business.i
What is business interruption insurance?
Business interruption insurance can cover the revenue you would have earned if the event hadn’t happened. This lost income could be due to temporary closure of your business premises or the rebuilding process after a disaster.
For many small businesses, even a relatively minor event can have severe financial knock-on effects. Say for example you run a physiotherapy business and your premises are damaged by flooding due to a major storm. Depending on the type of cover you have, business interruption insurance could cover not just the cost of repairs but also temporary relocation and other related costs until you are up and running again.
Business interruption cover is generally not sold separately. It may be added to a property insurance policy covering loss or damage to your business property, or as part of a business insurance package.
What can it cover?
Business interruption insurance is designed to cover loss of sales and the increased cost of remaining open for business, less any usual business expenses not incurred while you’re out of action.
It can help:
Cover profits your business would have earned, based on previous financial statements
Provide operating expenses, such as power, that continue while your business is out of operation
Provide relocation and operating costs at a temporary location as well as let customers know you have moved and when you will be open for business again
Cover the cost of training staff who need to operate machinery replaced by the insurer
Keep you afloat if your business is disrupted by government-ordered street closures relating to a local event
Cover interruption to your business even if the damage is to a supplier’s business or when gas or power outages limit your ability to do business
When you insure for business interruption you need to think about the type of business you are in, your geographic location and the potential risks your face. These factors, and the policy terms you select, will determine the premiums you pay.
Choosing the right policy
It can take weeks, if not months, to recover from a major setback, so it’s also important to select an indemnity period and policy limits that are appropriate for your business. The indemnity period is the length of time you wish to insure your business for loss.
Also think about when and how payments will be made. By selecting a weekly payment schedule, you have the peace of mind knowing that your cashflow will be maintained at a level similar to before the disaster occurred.
If you would like to discuss your business insurance needs, don’t hesitate to give us a call.
i ‘6 Reasons why you need business interruption insurance’, CGU 2016, https://rmainsurance.com.au/wp-content/uploads/2016/06/6-Reasons-Why-you-need-Business-Interruption.pdf