Several media reports relating to the Hawke's Bay water crisis have alleged that insurance cover for some businesses 'does not kick in unless a state of emergency is declared', or 'does not apply to contagious diseases.'

Given that these media reports focused on food outlets, you would have to say these businesses have arranged poor quality or inadequate insurance cover. The surprise of the owners at their lack of cover indicates that the limitations of their insurance policies were never explained to them.

So now the business owners are asking for compensation from government or the local council. If they receive it, it's the taxpayer who loses out, all because business owners seem to have been poorly advised by their insurance brokers. The owners need to get rid of their poor quality policies and find a quality insurance adviser.

This case highlights the need for all business owners, large or small, to spend time and effort understanding their risks, spend time finding a quality business insurance adviser, and spend time and money selecting better policies. Insurance needs to cover all sources of risk, whether physical, like lack of customers due to a health crisis, or personal, like the owner suffering a heart attack.


All possible sources of loss need to be carefully examined and contingency plans made. Policy triggers need to be understood. For example, some policies are very restrictive in that they require physical damage to the business premises. But the Canterbury earthquakes showed that businesses' premises may be fine, but loss occurs because customers cannot get there.

Business insurance is a complex area, and insurance is just one of many solutions. Other solutions will involve areas like cross-training staff, holding vital records in two or more locations, or running a customer database so they can be informed of a temporary change of location. It's no good being paid a lump sum if no one apart from the account's clerk understands how to work the payments system.

The majority of insurance advisers and brokers in New Zealand have very little specialist training in the details of business insurance as it is an expert area. Most advisers or brokers are unable to cover both general and personal insurance, or able to offer advice on the full range of non-insurance solutions.

Finding an adviser who is skilled and experienced in business insurance is vital and could save many businesses from bankruptcy. Owners need to take time to discuss their risk contingency solutions with staff and their adviser. Those advisers need to find policies that suit - and explain any cover limitations.

Owners are in business to make a profit and, as such, have no justification for asking taxpayers or ratepayers to cough up compensation when events like a health crisis occur.

Insurance exists to protect businesses against eventualities like Hawke's Bay's contaminated water supply - and it's up to businesses to make sure they have the right cover in place.

Dr Michael Naylor is an insurance expert with Massey University's School of Economics and Finance.