SA September blackout highlights value of business interruption insurance
By Chris Dougherty, General Manager, Westlawn Insurance Brokers 26 October 2016
As severe storms swept across South Australia on the afternoon of 28 September, the state’s 1.6 million residents suddenly found themselves without power at 3.45 pm as critical electricity infrastructure near Port Augusta failed causing the state’s entire power grid to shut down.
While Adelaide had the power back on within hours, the state’s regional areas suffered in the dark for much longer. Many businesses were still without power on the following Monday according to reports by Fairfax Media.
Manager of Drakes Supermarket in Port Lincoln, Chad Smalbil, told Fairfax that after losing power for almost two days, the supermarket was forced to throw out perishable stock estimated to be worth hundreds of thousands of dollars.
“I’m having a look through it all now and I’ve got some large, scary figures in front of me: dairy is up to $60,000 and frozen stuff is probably going to be a bit worse.”
While the supermarket did have a generator, that only provided power to a storeroom and freezer room in the back. It did not provide power to the cold cabinets and freezers in the shop. Staff moved as much of the perishables as possible into cold storage, but they were unable to save large quantities of dairy, seafood and frozen foods.
Lights out: Nine News reports on the SA state-wide power outage on 28 September 2016.
It wasn’t only the state’s small businesses that suffered either. South Australia’s largest manufacturers were also caught out by the power failure.
Nyrstar, a Port Pirie metals processor, estimated the blackout could cost the company up to $7.3 million in profit.
Whyalla Steelworks shut down production while BHP Billiton said back-up generators provided power to critical infrastructure at its Olympic Dam mine which would then allow operations to restart once power was restored.
Financial cost to run into the billions
On 29 September, The Australian reported that: “the financial cost of South Australia’s state-wide blackout could run into billions of dollars, with insurance unlikely to cover the significant financial losses for thousands of affected businesses”.
Speaking about the effect of the blackout on South Australian small businesses, the Insurance Council of Australia’s general manager of risk, Karl Sullivan, said that small businesses were less likely to have insurance cover that properly protected them from power outages.
“A lot of small and medium enterprises don’t insure at all, many don’t purchase business interruption insurance, and of those that do they often don’t get utilities cover.”
Small business not prepared for interruption
1 in 4 small businesses would not survive if they had to close their doors for 3 months.
38% of small businesses would shut down if they experienced a business disruption during a busy period in the year.
1 in 7 businesses experienced a shortfall in income because of a business interruption in the previous 12 months.
Less than 25% of businesses have business interruption insurance.
Source: CGU survey of Rural SME business, February 2013
Business interruption insurance
What the South Australian state-wide blackout illustrates is that businesses can’t take utilities services for granted. Failure of key infrastructure can happen at any time and have devastating effects on businesses, both large and small.
That’s why business interruption insurance is so important, especially as we enter the summer storm and bushfire season.
Business interruption insurance can provide a financial safeguard for your business in the event you suffer losses from a specified event such as a natural disaster. It can cover your regular business expenses such as:
Staff salaries and redundancies
Regular loan repayments or rents on business premises
Professional fees, and
Other regular payments.
It can also cover the costs of finding and fitting new premises. If you are rebuilding, it can help keep you afloat while waiting for plans or council permits. The costs of advertising to let customers know you’ve moved or reopened for business may also be covered.
You can choose from an extensive list of additional benefits in your package. For example, you can include interruption as a result of damage to other premises such as:
Key customers and suppliers
Key tenants in commercial complexes, and/or
The needs of each business will be different. Your Westlawn Insurance Broker can assist with determining the right level of business interruption insurance for your particular situation.