As businesses large and small are hit by the economic effects of COVID-19, social restrictions and inevitable forced closures, business owners are investigating any means possible to reduce fixed costs in order to preserve cash flow.
After stock, wages and rent, insurance usually features towards the top of the list of costs to cut, and the idea of reducing your insurance premium can be tempting.
But this is risky business. We recommend against cancelling property, business interruption and public liability cover altogether because, when a business is closed, unfortunately, fires, burst pipes, storms and burglaries continue. If a business is in financial stress, a robust insurance program is more critical than ever to ensure the business can reinstate its assets and survive this health crisis.
Why you need insurance when your business is temporarily closed
While business interruption won’t assist with claims resulting from the COVID-19 shutdown, businesses continue to face the potential of physical loss or damage, even when closed. For example, if a fire or severe water damage causes damage to a store and it takes 9 months to reinstate it – and the COVID-19 shutdown were only to last a few months – then the business would miss out on several months of much-needed insured gross profit paid by the insurer.
We expect that after being cooped up for months, punters will be breaking down the doors of cafés, restaurants and pubs to put the social restrictions behind them and catch up with friends and family. Businesses need to be positioned to take advantage of that uplift when it does occur.
Similarly, public liability cover is still required in case something occurs and your business is thought to be liable, even if you were not. Say a pipe burst on your premises and flooded a neighbour, or a fire started at your store and damaged the landlord’s building. If you don’t have public liability insurance in place, you’d have to fund your legal defence yourself, and if your lawyers lose, it’s game over. Also check your contract, as it’s a condition of many commercial leases that the tenant maintain public liability coverage.
Insurance is the last expense any business should stop or reduce, and the plain truth is that the businesses that cancel or reduce their insurance are often the ones that can least afford to take the risk.
This is particularly the case with any business that is heavily indebted. The business expense immediately becomes a life-changing personal risk if the owner loses the asset and still owes the money.
Insurance should never solely be about cost. It should always be about providing protection and reducing risk. Removing that protection when our community is at its most vulnerable isn’t in anyone’s best interest. In fact, it may be what keeps you going in the long term as we emerge from the other side of this pandemic.
Have you considered using the premium adjustment clause?
A much better strategy in respect of business interruption is to use the premium adjustments clause and, at renewal, provide a declaration of the actual gross profit of the business and seek a return of premium for the previous period of cover.
Your business premises will be unoccupied – do you need to let your insurer know?
Property insurance policies include an unoccupancy clause, requiring the insured to notify the insurer if the premises will be unoccupied for a significant period. This can result in insurers deciding to come “off risk” or increase the premium. To put it plainly – yes, yes you do need to let your insurer know.
It’s been great to see that, so far, insurers and underwriters appear to be doing the right thing and choosing not to impose additional terms on clients who are struggling both financially and emotionally.
Can’t make your next insurance payment?
We’ve seen premium funding partners already showing a greater degree of flexibility to clients who are unable to meet their monthly premium funding instalment.
If your business is under financial stress, we strongly suggest that you contact your premium funders credit department as soon as possible and quote your loan number. They will be happy to help with amendment to your instalment schedule and deferment of payments if necessary.
Still feeling confused and don’t know where to start when it comes to your insurance policies?
Our experienced General Insurance team is here to help you work out the best solutions for your insurance needs, with no obligations. Please don’t hesitate to reach out for advice to Adam Gibbins at adam.gibbins@thebluerock.com.au or Jess Flanagan at jess.flanagan@thebluerock.com.au .
As well as this, major industry bodies including NIBA and Steadfast continue to lobby the various State and Federal Governments to ensure the interests of SME insurance policy holders are recognised. If you are interested in learning more about what relief options there are for your business, we've created an up-to-date COVID-19 web page with the latest government relief options and packages.
