The chance of a business surviving a major loss is greatly increased with an adequate insurance program. No one ever remembers the premium saving they made with the business is a pile of ashes; everyone just wants to be fully insured with the very best insurance policy available. Regrettably, most find they have no insurance, or nearly as bad, they are under-insured.
Despite what some marketing campaigns suggest, insurance is not easy. Insurance is not like a washer or a toaster – you should never buy on price. You need good advice from a qualified and experienced insurance adviser that you can trust. Such a person is just as important to the business owner as the lawyer or accountant. If the worst does happen, the insurance adviser is the most important of all.
Business interruption insurance is not widely understood by many business owners. Perhaps consider the cover as a form of personal accident insurance for the business.
There is much more to protecting the investment that the business is to you, than simply insuring the physical assets of the business. The owners, shareholders and/or those that have provided investment finance, expect an income stream that will cover the financing costs, the costs of operating the business and an acceptable level of net profit. The net profit and ongoing expenses, including payroll, management and other staff bonuses, as well as financing costs, are all regarded as insurable Gross Income that needs to be protected.
In the event of fire or other insured peril occurring at your premises, a reduction in Insurable Gross Income can occur through two possible causes. The first is a reduction in turnover. In other words, a drop in sales will naturally lead to a loss of insurable Gross Income. The second case of a loss of insurable Gross Income can be from increased cost of working being incurred by the business that are over and above the norm, to keep production happening and your customers with stock. For example, a manufacturer who cannot produce may decide to outsource production in the short term to another firm so that they can maintain supply to their customer- base. A retailer may incur additional freight charges or rent temporary premises to allow them to continue to trade.
Many businesses do not believe that a loss will ever happen to them. The reality is that losses occur every day to businesses just like yours. Those that do not have full business interruption insurance have far less chance of surviving. Research suggests that the survival rate of a business without business interruption insurance is less than 1 in 10. Business owners invest a great deal in their business – it can be a major investments, the mortgage over their home and/or superannuation. It is vital that they protect themselves not only against the potential loss of cash flow, but the very survival of their business in the event of an insured peril.