Most Christchurch businesses had insurance, says Phil Snookes of the Insurance Brokers Association of New Zealand. "But some businesses found that their level of cover on building stock and plant, and business interruption insurance proved to be inadequate."
The earthquakes shook out those businesses where valuations had not been updated, that had insufficient sums on stock and plant, or not enough cover for demolition and removal of debris.
"In some cases the cost of demolition and removal of debris ballooned out of all proportion and the (insurance cover) didn't take into account all the unforeseen costs," says Snookes.
Typically firms with business interruption policies found their 12-month indemnity period was not enough.
While one year's indemnity cover might be sufficient for a business to get back up and running after a one-off factory fire, it wasn't anywhere near long enough when thousands of buildings had been damaged.
Getting loss adjustors, engineers, architects on site has taken months for many businesses. Council approval for works took longer, and some businesses found their cover ran out long before they got back into business.
Some business owners were also shocked at how their business interruption claims were handled by their insurance companies. For example, a number of owners found their cover wasn't paid out because their building hadn't been damaged, but the business was in the red zone and couldn't reopen.
Simply being behind the cordon wasn't enough to trigger a business interruption payment, even though the business couldn't reopen. Some owners in this situation had limited cover for prevention of access, but not enough in most cases.
Other business owners found their payouts reduced thanks to an insurance concept called "wider area damage". The business' turnover was affected not by the earthquakes, said the insurers, but by the fact that tourists and sometimes locals weren't coming and spending money.
The Catch 22 to this situation is that since the earthquakes, insurance companies - nudged at times by their reinsurers - have started to tighten the cover available. While it may have been possible to get two years' business interruption cover in the past, that may be more difficult now, or more expensive.
Businesses are also seeing their premiums skyrocket be they for assets, business interruption, motor vehicle, damage of goods in transit, public liability or even fraud. They have all been affected by the earthquakes.
Snookes adds that insurers have also increased the excess from a percentage of the loss to a percentage of a site's value.
The earthquakes have dealt other lessons to business and local authorities. Auckland Civil Defence controller Clive Manley says companies need continuity plans to survive disasters and get up and running again.
Electricity and gas failures in Auckland have shown that SMEs aren't well enough prepared for disasters. Yet it's important both for the economy as a whole and each individual business that they are resilient.
Manley says the website ResilientBusiness.co.nz has been launched to encourage busineses to develop plans to survive a disaster. Those with good continuity plans will also find they have a competitive advantage over those that don't.
Snookes adds that the earthquakes have highlighted the need to have a good insurance broker who really understands your business. It's not just about selling a policy. Insurers are requesting far more information from businesses in order to underwrite the risk. They need to know details of the construction, building age, occupation, physical security, fire protection and more.
A good broker goes through a thorough risk assessment with his or her client, considering all the risks faced by a business and how they might be mitigated.
Business owners often don't read their insurance policies or don't understand them and a good broker will explain how the policies work.
