Recent flooding in Queensland and other parts of Australia has highlighted the critical need for businesses to have adequate insurance coverage. Many small business owners have lost everything and will have an extremely difficult time rebuilding their operations. While assistance from the State and Commonwealth governments may help, it remains unclear if financial institutions will be lenient in enforcing their rights under finance agreements and lines of credit. In addition, many businesses have been caught out in not having sufficiently wide coverage for natural disasters and loss of stock.
These are, of course, all good arguments for small businesses to urgently review their insurance arrangements and policies.
What should Businesses do to find Insurance?
Unfortunately, it is a mistake to assume anything in insurance. This means that businesses must be very attentive to the specific policy wording and exclusions. There is no simple way of choosing the right insurer and it would be extremely unwise for a business to rely on an established relationship to cover any gaps that might exist in an insurance policy. By the same token, it may actually be beneficial for inexperienced businesses to completely ignore any marketing or promotional matters that have been prepared to simplify the terms and condition of an insurance policy, as these materials are not the primary source of the contract for insurance. However, it should be noted that any deliberately false or misleading advertising or statements by the insurer may create a possible ground for legal challenge.
To this end, many businesses engage insurance brokers to find and obtain quotes for business insurance. Again, using a broker is not a substitute for understanding the policy wording, but their assistance can help in identifying different options.
Reviewing Insurance Arrangements
For businesses that have existing insurance arrangements, it is important to consider obtaining specialised legal advice that addresses your current policies. As a guide, it may be useful to ask an insurance lawyer to examine a number of matters:
- The adequacy of existing risks coverage – Does the insurance policy cover (at a minimum) natural disasters, fire and defined events, theft, property damage and business disruption?
- The level of insurance coverage – What are the defined limits for claims (eg an insurance policy covering land and buildings is insufficient if it assumes that property prices have remained static in the past ten years).
- What are the policy exclusions – This is a very tricky area and covers when the insurer will not cover a particular risk. Exclusions are often triggered when there are unusual circumstances (such as a riot or war) and you should consider if a more extensive policy is necessary.
- What are the coverage conditions – Many insurers will either only provide coverage if businesses take steps to minimise certain risks (eg installing a security system). By the same token, some insurers may provide a premium reduction if you demonstrate that your business has taken specific steps to minimise a risk.
Choosing the right insurance is hard. While there is a strong temptation for small businesses to assume that it either won’t happen to them or that their coverage will be sufficient, it can be a great relief to know that you are on solid footing.