Business interrupted: Profit from the right policy

By Chris Dougherty, General Manager, Westlawn Insurance
25 July 2017

Most businesses are not financially protected from an unexpected interruption that could temporarily close or restrict the operations of the business.

The latest Vero SME Insurance Index surveyed 1,500 Australian business owners in October last year. It found that while more than half had a clear succession and contingency plan in place in the event of them being unable to work in the business, only 21% of those businesses claim to have business interruption insurance. 

And a 2016 CGU survey of 500 small businesses found that less than a quarter of the business owners surveyed had business interruption insurance.

The CGU survey also found that:

  • 1 in 4 would not survive if they had to close their doors for 3 months.
  • One quarter would have to permanently shut down if they experienced a business disruption such as a major fire or storm. This rose to 38% if the disruption occurred during a busy period.
  • 1 in 7 businesses experienced a shortfall in income because of a business interruption in the previous 12 months.

Why consider business interruption insurance

Business interruption insurance helps cover the shortfall in profits caused by an interruption to your business where you are forced to temporarily close your doors or operate at a reduced capacity.

It helps cover ongoing expenses and protects profit margins until your business can get back on track.

Some common losses typically covered include:

  • Profits you would have earned during the interruption. Usually based on income in previous months.
  • Operating expenses and overheads that still need to be paid even when your business is not operating, such as rent and wages.
  • Costs of temporarily opening at a different location to continue trading.

Additional cover may be added to include other expenses or losses, such as:

  • The costs of preparing a claim including accountant, auditor and consultant fees.
  • The loss of any government incentives, subsidies, or allowances to which you may have been entitled.

Unforeseen interruptions to your business

Unforeseen interruptions can affect your business at any time. And they may not even occur at your own business premises directly. Some situations in which business interruption insurance may financially assist your business include the following.

Damage to utilities

Power, water and sewerage and telecommunications are all vital for the everyday running of your business. A fire in an electricity power station or suburban substation, for example, could shut down the supply of power to your business, severely disrupting or halting operations.

Many South Australian businesses experienced such a disruption in September last year, when the state’s power grid shut down.

Business interruption generally covers you for damage to land-based infrastructure located in Australia owned or controlled by any company or authority producing, supplying or delivering electricity, gas, water, sewerage or communication services used by your business. Exclusions may apply where the supplier’s property is at or immediately adjacent to your premises, or where supply is interrupted for less than 48 hours.

Access to your business is restricted

If your employees, suppliers and/or customers are unable to access your business premises, your business will suffer losses.

You may be covered for an interruption to your business where, for example:

  • Damage occurs to your landlord’s and/or other non-owned property used by you at the premises.
  • A property in the immediate vicinity of your business is damaged which prevents or hinders access to your own business premises.
  • Your business is located in a multi-tenanted retail shopping centre or commercial complex which is damaged preventing customers from coming to the shopping centre or commercial complex.
  • A public authority orders the evacuation of your business premises due to an outbreak of an infectious or contagious disease, vermin or pests, or poisoning of customers caused by the consumption of food or beverages provided on the premises.

Interruption to your supplies

Whether you manufacture machinery parts, bake cakes or sell furniture, your business will rely on regular supplies of some sort.

Factory fire: Photo abc.net.au

What would happen to your business if those supplies were unable to make their way into your business?

Typical business interruption policies may cover losses to your business where, for example:

  • The premises of a business that supplies components, materials or services to your business is damaged and unable to supply your business.
  • A road, bridge or railway line is damaged resulting in your business not being able to receive deliveries of components or materials used in your business.

Cancellations, fines and damages

Your business interruption policy may also cover you for the costs of paying cancellation charges, or fines or damages for breach of contract due to non-completion or late completion of orders for your goods or services, or for breach of contract by you for goods or services that you cannot use during the interruption.

These are illustrative examples and do not include the full list of situations that may be covered by any particular business insurance policy.

Consult a Westlawn Insurance Broker

Business insurance policies will differ from one insurer to the next, including what is covered, optional extras, exclusions and policy wordings. Your Westlawn Insurance Broker can assist with determining the right level of business interruption insurance cover to suit the individual needs of your business.

Contact Westlawn Insurance Brokers on 1300 WESTLAWN (1300 937 852) or email us at insurance@westlawn.com.au

Further reading

SA September blackout highlights value of business interruption insurance

Business continuity planning: How your business can survive a crisis

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Westlawn Insurance Brokers Pty Ltd ABN 65 075 847 291 AFSL No. 246520