Insuring for business interruptions

Business interruption insurance

In the highly competitive world of small business, the slightest little hitch can send you into a tailspin. Most small business owners would like to think they are prepared for life’s hurdles, by insuring their premises, their employees and their equipment.

But what if you had to shut your doors due to an unforseen business interruption? Would your business survive? What if you were in retail and you were forced to close your doors just before Christmas?

Business interruption insurance covers the shortfall in gross profits caused by the interruption to a business from insured events, helps pay ongoing costs and protects profit margins until the business is back on its feet and back at its profit level before the interruption.

It forms one of the options as part of CGU’s business pack and office pack.

Would your business survive a prolonged interruption?

CGU’s recent survey of nearly 500 small businesses found that one in four would not survive if they had to close their doors for three months.

The survey found that a quarter of small businesses would have to shut down if they experienced a business disruption such as a major fire or storm and this figure jumped to 38 per cent if the shutdown happened during a busy period in the year for that business.

Perhaps the most striking finding was that 1 in 7 businesses experienced a shortfall in income because of a business interruption in the past 12 months.

Despite the findings, less than a quarter of business owners surveyed actually had business interruption insurance.

Things to consider

Business interruption insurance can:

• Keep you afloat while you wait for plans to be drawn up or council permits to be approved when rebuilding
• Cover the costs of finding and fitting new premises, advertising to let your customers know you have moved and when you’re fully open for business again
• Ensure you are able to continue to pay and retain key staff while the business gets back on its feet
• Cover interruption costs to your business, even if the damage is to another business you don’t own, such as suppliers not supplying, key customers unable to purchase your goods or when power or gas outages limit your ability to do business.

When insuring business interruption, you will also need to select an ‘Indemnity Period’. This is the period of time you wish to insure your business for loss of gross profit. You may be surprised how long it takes to get back to business, particularly after a major event.

A CGU customer whose motor repair business was consumed by a fire, including 19 customer cars, took 18 months to get back to where he was before the fire. Investigations, council planning and permits can take longer than you expect.

Realistically, any business interruption could be a major setback for a small business, particularly in the current economic climate, where margins for many operators are already tight.

The first step to ensuring your small business is fully protected is to understand your risks. Consulting an insurance adviser can help you assess what insurance your business has, and what other covers you need to make sure you’re protected.

Use CGU’s find an insurance adviser tool to locate an insurance adviser in your area.