Recent summer storms have reminded many businesses of an uncomfortable truth: when you can’t operate, the bills don’t stop. Yet Business Interruption remains one of the most misunderstood coverages for SMEs.
Having a policy is one thing. Having adequate coverage is another entirely.
Three Critical Gaps Most Businesses Have
1. Outdated Sum Insured
If your business has grown, your original calculation is probably inadequate. Your sum insured needs to cover lost profits PLUS all fixed costs (wages, rent, loans) for the entire indemnity period. When did you last update this figure?
2. Indemnity Period Too Short
Most policies cover 12 months. However, if your premises burnt down tomorrow, could you fully restore operations in 12 months? Factor in finding new premises, rebuilding, replacing equipment, and winning back customers. For many businesses, 18-24 months is more realistic.
3. Limited Trigger Events
Standard policies only pay when there’s physical damage to your property. Power outages? Supplier failures? Denial of access by authorities? Not covered unless you’ve purchased specific extensions. Recent events taught many businesses this lesson the hard way.
Extensions Worth Considering
- Denial of Access – when authorities prevent access to your premises
- Utilities Interruption – power, water, gas, telecommunications outages
- Suppliers Extension – when damage to your critical supplier stops your business
- Disease Coverage – infectious disease forcing closure
The Real Cost of Getting It Wrong
Unlike a damaged vehicle or broken window, an extended business interruption can mean the difference between survival and closure. Many viable businesses with healthy balance sheets have failed simply because they couldn’t weather an extended shutdown with inadequate insurance (Insurance Council of Australia, 2023).
Don’t wait for disaster to discover your coverage falls short. A conversation with one of our team at LA Insurance now could save your business later. We can provide advice and options to meet your budget and needs.
References
Insurance Council of Australia. (2023). Understanding business interruption insurance. https://www.insurancecouncil.com.au/