What is Business Interruption Insurance? 

Business interruption, also known as Loss of Profits or Consequential Loss Insurance, is a special insurance cover. It pays the business owner any fixed overheads and similar business costs following a fire, storm damage or other major events that prevent a business from trading. This insurance starts from the time of the fire until the business is back up and running to where it was before the damage occurred.  

Why is Business Interruption Insurance important?

Starting and running a business always carries risks. The key financial risks can be managed by buying insurance cover like Property Damage, Public and Product Liability, and Burglary. 

For businesses of any size, Business Interruption Insurance is essential to ensure that money continues to be received (from the insurer) to pay fixed expenses – such as lighting, power, bank loans, wages, transport, plus net profit related to a reduction in turnover.   

What does Business Interruption Insurance cover?

Business Interruption Insurance compensates business owners for:

• net profit expected to be earned during the time the business takes to get back up and operating to its pre-loss output
• any fixed expenses (interest on loans, wages etc.), that keep on being incurred, regardless of whether the business is operational or not. 

Variable expenses, like input purchases and delivery costs, would not be covered, as they won’t continue if the business isn’t operational and making goods or products. 

The time period for getting the business back up and running to pre-loss levels (plus any expected growth) may take a few weeks or many months, depending on how badly damaged the business was, the loss of customers, and other factors. Working out the maximum time you need insurance for is important – but 12 months is a good place to start.

Choosing your insurance policy

Key factors to consider when choosing the basis of cover, which will impact your premium, include:

• Indemnity period. How long do you need the cover for? Depending on the situation, how long will it take your business to return to pre-loss trading? 
• Payroll. How much of your payroll do you need to insure and for how long? Insurance companies won’t pay employees to sit at home for six months while the business is being rebuilt, but redundancy payments can be insured.
• Growth. Consider the trends in your business: is it growing rapidly, or is it a mature business?
• Economic cycles. Are there any major seasonal fluctuations or economic cycles?
• Suppliers and customers. Do you need to cover specific customers or suppliers that you rely on. If they couldn’t operate, would it impact your business?
• Additional or increased costs of working. Most businesses spend a lot more money in the short term to try and minimise the impact on their business. For outsourcing a valued customer's work to another business for a short while, or if you own a building that’s fire damaged when your business is located, and you need to rent premises for manufacturing, this will be a new additional cost of the rent.

Frequently Asked Questions 

●    How Is It Calculated?

There are two main ways to purchase this type of insurance:

1. Weekly income or Sales
2. Annual gross profit (being 12 months turnover less variable expenses, also insuring net profit).

Does it cover loss of profits for services firms?

For example, solicitors, investment consultants, and medical or dental practices. As many of these businesses can continue to operate from home or serviced offices, gross profits are generally not insured, only additional or increased working costs.

However, businesses that depend on their specific location, such as dentists or allied health, that have their customers in a specific area may consider Gross Profits Insurance. 
 
In Summary

Storms, natural disasters, and fires are regular occurrences in Australia. Major interruption to business, where there is no income for an extended time, is one of the most significant risks a business will face, regardless of its size or industry. A large percentage of businesses that don’t have Business Interruption Insurance never reopen. It’s difficult to pay employees or mortgage costs, suppliers or even the power bill if there is no sales or revenue. 

In addition, trying to get your business back on its feet can be overwhelming – taking management’s focus away from day-to-day business, as well as placing significant financial strain on you and the business.

We can help you find the best cover to keep your business running as smoothly as possible.

What is Liability Insurance? 

Liability Insurance is a general term that covers multiple types of insurance cover that help people and businesses protect themselves from potentially large legal defence costs and any damages awarded by a court. 

The main types are Public & Products Liability, Professional Indemnity, Management Liability, Statutory Liability & Product Recall. These also specialist liability insurance for the aviation, marine, Care and finance industries. 

Why is Liability Insurance important?

Some Liability Insurance is mandatory, which means the government requires you to have it in place to operate the business – like Professional Indemnity for architects or CTP Liability Insurance for registered cars and trucks. Other types are optional, with the scope and amount of insurance cover chosen by the business owner.

Anyone who deals with the public, sells, imports goods, drives a car or truck or operates a plane or boat should have Liability Insurance, which has two main cover sections:

1. Public Liability – injury to the public or damage to their property on the business premises or caused in a truck or boat accident.
2. Product Liability – once the item you sell or repair leaves your control (for example, a plumber installing a washing machine), if it damages or injures someone then you could be legally responsible.

Additional covers include:

• Professional Indemnity – if you provide advice or a service, such as an accountant, care worker or building consultant, you could be legally liable for any advice you provide, which results in external clients or customers being financially worse off.
• Management (D&O) Liability – covers the personal liability of directors, officers and senior managers for mistakes they make in running the business. This may result in a loss to the company, its shareholders, or bank or an investigation by ASIC, EPA or other government agencies.

What does Liability Insurance cover?

Cover depends on the type of Liability Insurance you’ve purchased, as well as your business and your industry:

1. Public Liability Insurance – covers people, businesses, events and contractors for legal defence costs if legal action is taken against you or the business, whether it’s a genuine claim or a try-on from a disgruntled customer. This insurance will also pay any damages awarded by a court if found responsible for causing personal injury or damage to property, as well as any resulting financial loss. While Public Liability cover can be mandatory, like plumbers in some states, it’s mostly optional and a decision for the business owner.
2. Product Liability Insurance – If you make, import, sell, distribute or repair products, you can be responsible for personal injury, property damage or resulting financial loss due to faults in the product, product advice about the use, or even customer misuse. You are unlikely to be able to depend on the original manufacturer, importer or retailer to protect you and pay for your legal costs. So, it’s a good idea to take out Product Liability Insurance as protection against potentially having to pay expensive legal defence costs and any damages awarded by a court.
3. Professional Indemnity Insurance – provides cover for professionals which is any person that has expertise and is usually part of a trade or professional group, such as builders, designers, architects, IT consultants, and allied health professionals, as well as doctors and lawyers. It covers legal defence costs and any damages awarded from an act, error or omission arising from professional services you and your business provide to customers and clients.
4. Management Liability Insurance – covers directors, officers’ and senior managers against actual or alleged acts, errors or omissions arising out of the operation or management of the company. The cover is for personal legal defence costs, as well as any damages awarded for a breach of work-related duties and responsibilities. The policy will also reimburse the company for any legal costs advanced to the director or officer.

As you can see, there’s a wide range of Liability Insurance, with cover tailored to each industry and type of business. The better advice you get, the more informed your decision to ensure the best protection for you, your directors and managers and the business.

We’ll be glad to talk with you to understand your needs and provide advice on the best way to manage your personal and business liabilities.

Frequently Asked Questions

What is an example of liability insurance? 

There are mandatory and optional liability insurance covers required by government bodies or professional organisations.

1. Mandatory or Statutory Liability Insurance policies include Professional Indemnity (also referred to as PII or E&O insurance), Motor Vehicle CTP, Workers' Compensation and Builders Warranty.
2. Optional Liability Insurance policies include Property Owners’ Liability under a home or property insurance package, Protection & Indemnity insurance for boats, Public Liability for shop or office owners, and Product Liability for importers, wholesalers and builders.

What is covered by liability insurance in Australia?  

Liability Insurance covers a person or a business against claims (whether real or invented) that the person has been injured, their property has been damaged, or they’ve suffered a financial loss. All policies provide legal costs to defend against threatened or actual litigation, and also pay for damages if you or the business are found to have been responsible.

What kind of liability insurance do I need? 

Some occupations, such as builders or tax agents, must have Liability Insurance in place before starting a business. Talk to your professional organisation or industry association about what insurance you need. Other Liability Insurances are optional – for example, a large food producer may look at buying Product Recall, whereas retailers and property owners would purchase Public Liability. Motor Vehicle CTP and Workers' Compensation are required if you own or operate vehicles or have employees.