Protection at a price

Rhys Faleafa says insurance is vital. Photo / Doug Sherring

Insurance brokers are reporting a big jump in sales of business-interruption cover since the Christchurch earthquakes, but warn the policies are coming at a price.

Mark Hayes, director of McCarrison Hayes Insurance Brokers, says his firm has sold more of the policies in the past two months than it had in the previous year.

He said the Christchurch events had highlighted the need for business-interruption insurance and cast a spotlight on how many businesses did not have it.

A survey conducted by the Canterbury Employers' Chamber of Commerce two weeks after the September 4 earthquake showed 89 per cent of businesses were fully insured but only half had business-interruption cover.

ICIB senior broker Brindley Wood said clients who didn't already have the policy were now seriously considering it.

Business-interruption insurance was the single most important cover during a natural disaster and would "save your bacon", he said. "Unless you have huge funds stashed away, there's a less than 5 per cent chance of survival. Once the cash flow dries up your business is history."

However, BNZ small business national manager Harry Ferreira said people should look at insurance as a holistic package.

"Business life protects key people within the business. Business commercial, which includes business-interruption insurance, protects property and cash flow."

Business-interruption insurance covers sudden unforseen loss, damage to customers' assets at business premises, damage to public utilities, damage to the customer or supplier's premises and damage to leased property at the customer's site.

Wood said people were increasing their period of cover after realising that while they may be up and running in four months, it could take up to 24 months to get back to their previous financial position.

But business insurance was now coming at a cost. Firms were likely to see increases when they did their renewals, Wood said.

"They'll get a double whammy. Their premiums will increase and their excess will go up. It's a cost that has to be passed on but insurers will be cautious of pushing up prices to the point they're unaffordable."

As of May 1, natural disaster perils for property policies had increased by 40 to 60 per cent with earthquake excess also on the rise.

In Auckland, the standard excess used to be 1 per cent of the loss incurred or a minimum of $1000, but that had now increased to 2.5 per cent of the insured site value, or a minimum of $2500.

In Christchurch that figure was greater, at 5 per cent of the insured site value or a minimum of $5000. In Wellington, it was higher still, at 10 per cent or $10,000.

Business-interruption policies kicked in after loss under material-damage policies and the excess applied to both, Wood said.

Canterbury Employers' Chamber of Commerce business recovery manager Leeann Watson said business-interruption insurance had been "a godsend" for some Christchurch firms but there had been issues around what was and wasn't covered and when policies were triggered.

"Some businesses weren't able to activate their business-interruption insurance. Their buildings and stock were undamaged yet they were in the red zone next to unsafe buildings. It left them feeling frustrated."

She said the issue had lessened now that people were able to re-enter the zone but there had been no time frame for when they could retrieve their stock.

"There needs to be a discussion around the time frame of when companies can get back. Some were out of action for two months, which can be a long time with no cash flow."

It also caused confusion when seeking government assistance. "They couldn't get access to the employee subsidy scheme because they had business-interruption insurance, yet the policy was not activated."

Spared big losses

When five of Huffer's six Christchurch customers closed it had a flow-on effect, said general manager Rhys Faleafa.

The clothing company has been operating for 14 years and has 70 accounts in the country.

"Christchurch is a big area for us. It's had a big impact on our revenue. We took a hit from the earlier earthquake but most stores reopened. It was the second quake which obliterated most of them."

Huffer has property insurance, marine/cargo insurance, public liability insurance, travel insurance, key-person insurance, loss-of-profit insurance and business-interruption insurance.

"I sent an email to my broker saying, 'Hey, all our customers have shut up shop in Christchurch, are we covered?"' The answer was yes.

"If we weren't, we'd ... be out of pocket by tens of thousands of dollars."

Faleafa recommends an independent broker as they look out for customers, not the insurance companies.