This fact sheet is one of a series that looks at the steps you can take to give yourself the best chance of fixing or replacing your property and belongings if they're damaged or destroyed in a natural disaster, such as a bushfire, flood or storm.
See Fact Sheet 18: Glossary for definitions of words and terms that are in bold text.
To find other fact sheets in the series go to www.InsuranceCheckup.tas.gov.au or visit your local Service Tasmania for an info pack.
The impact of natural disasters on businesses
If you haven't experienced a natural disaster, it can be hard to think of all the things you might have to deal with once the emergency has passed. While the obvious impact is damage to buildings, furniture and stock, we're less likely to think about the disruption to the operation of a business.
Some Tasmanian business owners have experienced this disruption following bushfires and floods, even when they were not directly impacted. While their own business assets were not damaged in the disaster, access to their business location was either cut off completely or made much more difficult because of damage to connecting roads, electricity, communications and other infrastructure. This led to owners and staff being unable to get to work and customers being unable to easily get to the business, resulting in a complete loss of, or severe drop in, income. You can read the case studies on the Insurance Checkup website at www.InsuranceCheckup.tas.gov.au for personal stories about this.
The loss of income can have its own unfortunate outcomes, including many instances where business owners have struggled to pay their staff and bills while access roads and other structures were being repaired (often over a long period).
People who suffer loss and damage in natural disasters generally receive support from family, friends, charities, and other organisations and people within their communities. When it comes to businesses, public appeals are often not able to give financial support for commercial activities due to tax law restrictions. Emergency assistance and grants of money might be available from state and federal governments to help with a business's immediate recovery needs. However, these payments are usually small when compared to the total cost of replacing, repairing or rebuilding all that has been lost.
Insuring your business
If you own a business, it is likely that you already have at least some insurance to protect you from risks you face in your particular industry and situation. If you haven't, you definitely should consider what you stand to lose if things go wrong.
As with all types of insurance, it is important to avoid underinsurance by regularly checking whether you have enough of the right sort of cover to give you financial support if something unexpected, including a natural disaster, affects you.
Types of insurance available for businesses
Insurers offer a wide range of insurance cover for businesses and often bundle together an insurance 'package' that is specifically designed to meet the needs of particular types of businesses or industries (for example, a farm package, tradespersons package or home-based business package) (see Fact Sheet 7: Insuring your rural property against natural disasters).
A typical business insurance package might include compulsory public liability, workers' compensation and third-party vehicle insurance, as well as product liability insurance and theft insurance. It might also include building and/or contents insurance (which covers damage to or loss of buildings, contents and stock caused by insured events and accidental damage).
Make sure you carefully check the inclusions and exclusions in any insurance package you are considering as not all situations will be covered if your business is affected by a natural disaster.
Business interruption insurance
Business interruption insurance is another type of insurance that you can add to your package (it's not available as a separate insurance policy). Also known as business continuity insurance or business revenue insurance, business interruption insurance covers short-term financial loss if you can't operate your business due to damage to your business premises or equipment.
The coverage can often be extended to include situations when you can't operate your business because the premises of your suppliers or customers have been damaged, and when you or others can't access the business. It can sometimes also include loss you suffer because of an interruption to the supply of the goods and services (e.g. gas and electricity) you need to operate.
Insurance for other structures
If you own your business or property, you will also need to consider if there are structures – other than your building – that you are responsible for repairing or replacing if they are damaged following a natural disaster. This could include fences, bridges or roads. If so, you should consider whether you need to insure them (see Fact Sheet 8: When you could be responsible for roads, bridges, fences and power poles).
Avoiding underinsurance
As well as thinking about possible scenarios when organising your business insurance, make sure that you put an accurate value on the assets you are insuring. When you buy an insurance policy, you and your insurer agree on the maximum amount they will pay you if an insurance claim you make is successful. If you have agreed on an amount that is less than the actual value of your assets, you might be underinsured, which will mean you would have to pay for the additional cost of replacement over the level of the policy if you suffer loss or damage.
Also keep in mind that most business (property and business interruption) policies have an 'average' or 'co-insurance' clause, which may be applied when making a claim if you have valued your assets as much less than their actual replacement cost.
This means that if you are underinsured and you suffer a loss, your insurer would review your assets, calculate the level of underinsurance and reduce your claim settlement amount in proportion to the underinsurance. For example, if $50,000 of your assets were damaged and only 50 per cent of the assets' actual replacement value was insured, then the claim may be settled for only $25,000, leaving you $25,000 out of pocket – a situation that might be devastating for your business.
Always read the policy's Key Facts Sheet and Product Disclosure Statement, and ask your insurer to explain anything you are unsure about.
Choosing the right insurance and insurer for your business
Considering your insurance options
It's a very good idea to weigh up the cost of all types of business insurance, especially business interruption insurance, against the potential financial hardship you could experience after a disaster.
You do have to be very careful that you choose a policy that will meet as many potential scenarios as possible. Business interruption insurance will not always cover loss arising from damage caused by natural disasters, and it usually won't cover financial loss that is the result of a decline in demand for your product or service following a disaster. But having good cover in place for the things that you can readily insure means that you don't have capital replacement costs at the same time as you are dealing with a post-disaster economic slump.
For these reasons, it's really important to carefully read the policy's Key Facts Sheet and Product Disclosure Statement and to ask your insurer to clarify with you exactly what is covered and not covered (see Fact Sheet 13: Finding and comparing insurers and insurance policies).
Finding a general insurer
To find an insurer that offers different types of business policies for different industries, you can explore the Insurance Council of Australia's free Find an Insurer service at www.findaninsurer.com.au.
Finding an insurance broker
Many business owners – particularly if they have considerable assets or operate in a specialised industry – prefer to work with an insurance broker to organise their insurance. Apart from the wide product knowledge a broker has, some insurance products are only available through brokers. While using an insurance broker is not free, ultimately their fee forms part of the overall premium that you pay for your cover. To find out more about insurance brokers and to find one in your area, go to the Need a Broker website at www.needabroker.com.au or phone 1300 531 073.
Where to go for business guidance and support
Business Tasmania (1800 440 026) is the Tasmanian Government's contact point for businesses during and after disasters or other emergencies, offering guidance and support. You can also go to their online resource at www.business.tas.gov.au for more information about all aspects of starting and running a business, including what to think about when insuring your business and where to go for assistance.
The website also offers a comprehensive and simple-to-use Business Continuity Plan to help you to know your risk, get ready, take action, and reassess, recover and learn from a natural disaster.
Resources
For general information, and for calculators and other tools to help you manage your own insurance:
- Understand Insurance: www.understandinsurance.com.au
- Find an Insurer: www.findaninsurer.com.au
- Money Smart: www.moneysmart.gov.au
Important notice
This fact sheet gives you basic and general information only. It does not cover every situation or everything you may need to know about insurance. It does not take into account your personal circumstances. Make sure you carefully read Key Facts Sheets and Product Disclosure Statements. Ask your insurer as many questions as you need in order to understand how your insurance policy will work for you. Use other tools available to you and seek professional advice if needed.
Information in these fact sheets has been drawn from a number of publicly available Government and non-Government resources.
This project has been jointly funded by the Commonwealth and Tasmanian Governments under the Disaster Recovery Funding Arrangements.