Keep the cover on, but watch the costs

By CRAIG FISHER*

It's the issue on most business owners' minds - every business needs it, but costs keep rising.

The recent furore over Southern Cross increasing its health insurance premiums has thrust rising insurance costs back into the spotlight.



Failed insurers overseas, major disaster claims and ballooning payouts in areas such as public liability and professional indemnity mean New Zealand businesses' insurance premiums will continue to rise.

We have already had increases up to 60 per cent and increases of up to 300 per cent have been reported in Australia.

Think carefully before cancelling insurance, limiting levels of cover or buying insurance simply on the basis of who is providing the cheapest cover.

These might seem like good ideas when you look at the cost issue, but what about if you have a claim? Insurance is all about managing risk and protecting assets. Unless you build in this protection then you are putting your business at risk.

So where do you start?

* Understand the types of insurance available to your business.

* Identify the insurance you require.

* Assess the level of cover appropriate to your business.

* Talk to the insurers or use a broker to find an insurance provider who is reliable and cost effective.

* Ensure you have appropriate risk management for your business to limit the risk of insurance events occurring.



Some tips in managing your insurance * Allow enough time to shop around for the right cover and price.

* Don't place yourself in a position where you have to accept the first quote you receive because your cover is about to expire. Be prepared to shop around. Remember, pay as much attention to getting the right cover as the right price.

* Decide how much of the risk you are prepared to carry.

* Some insurance policies carry an excess - the amount of a claim you will be responsible for before the insurance company pays. Often the greater the excess you are prepared to carry, the lower the premium cost. Sometimes accepting a higher excess will help in containing your premium costs. But make sure that if you have to make a claim, you can meet whatever excess you accept.

* Select the right level of cover.

Some insurance policies provide no option to the level of cover, but for some business and personal risk insurances you will need to decide on your level of cover. You may be in a business where the risk of burglary is quite low. In this case you may decide to insure yourself for only a limited level of cover.

It's also very important to be clear about exactly what is covered and what is excluded under your policies. For example, terrorist activities are generally excluded, but do you know what constitutes terrorist activity under your policy?

It is also important to ensure you have a clear, written record with your insurer of any areas you were unsure about. This will help to avoid disputes if a claim is made.

Another important issue is to know what will be covered by ACC and what areas your business will need to cover itself.

* Have a risk management approach to your business. Limiting the risk of accidents or claims will not only reduce the cost of your insurance but will save all of the headaches that come with insurance claims.

* Review your cover periodically.

Rarely is insurance a set-and-forget process. Your business position changes and so will your insurance needs.

* Are you a member of a group or association? If so, see if it can provide group cover, which can reduce costs.


* Craig Fisher is director of accounting and business advisory firm Hayes Knight Insurance.