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 SME Business Insurance?

Any business in Australia, including small to medium-sized businesses, will benefit from an added layer of financial security in the form of an SME Business Insurance cover. This provides owners and businesses with protection against financial risks and the loss of key assets. It also protects customers, employees, suppliers, and contractors.

Some types of insurance are mandatory, like Workers' Compensation, Professional Indemnity, or CTP Insurance for motor vehicles – these are called statutory insurance covers. Other types of insurance are optional, but they are important ways of reducing business risk and protecting your finances and assets.

What does SME Business Insurance cover?

• Property Damage – cover ranges from fire, storm, lightning and other perils to any type of accidental loss or damage. The property insured includes damage to buildings, contents, stock, plant and equipment, raw materials, and consumer goods.
• Business Interruption – covers weekly amounts or net profit loss and ongoing fixed costs following property loss or damage. Also referred to as Loss of Profits or Consequential Loss Insurance.
• Burglary/Theft - covers break-in at the business premises and the damage is done, as well as theft of goods or stock;
• Money - covers theft of money in various locations (during transit, in a locked safe, or in a private residence) at any time (within and outside business hours). 
• Liability - covers a variety of statutory and civil legal liability, including personal injury and property damage, environmental liability, management liability, statutory liability, professional liability, aviation, marine and motor vehicle-related liability;
• General Property - covers specified portable property against accidental loss or damage once it is taken off the premises, within Australia or overseas; 
• Equipment - covers sudden internal derangement and accidental loss or damage to plant, equipment and machinery, as well as computer and other electronic equipment. Loss of stock and business interruption cover can also be part of this insurance. 
• Motor vehicle & mobile plant – covers registered and unregistered motor vehicles, mobile plant & equipment, farm equipment, construction plant, as well as attachments and trailers. This insurance can also cover loss of income, downtime and hire costs of replacement equipment. 

Speak to an insurance expert

It is our business to understand your objectives, needs, financial situation and risk profile and provide you and your business with tailored risk and insurance advice. 
This is how we work with your business:

1. We analyse your objectives, needs, financial situation and risk profile to develop appropriate strategies and solutions. 
2. With your input, we undertake risk assessments and conduct market research to determine the most suitable insurance product(s) for your key risk exposure. 
3. Your insurance adviser will present appropriate strategies and solutions and also negotiate and place insurance covers agreed.
    

Frequently Asked Questions

• How can insurance help small businesses in Australia? 
  • In Australia, small businesses are encouraged to invest in business insurance to help protect their business from costly eventualities like damage to property and liability claims. Investing in a comprehensive yet affordable insurance policy promotes the continuity of the business in times of losses or great financial trouble. 
• What does SME stand for? 
  Small-to-medium enterprises (SMEs) are businesses whose revenue, number of employees and assets do not exceed a certain threshold. Each country or industry defines a set of criteria to determine whether an organisation falls under the SME category.
• How can insurance help small entrepreneurs or SMEs, or how it relates to risk management? 
  Risk transfer is one of the treatment approaches in managing risks in business, and insurance is an example of risk transfer. It’s a strategy that SMEs employ to shift a risk or a liability from one party to another when that party specialises in managing a specific kind of risk/liability. 
• Why is insurance important for business owners? 
  Getting an insurance policy for your business is important, as it cushions or completely shields you from the hefty costs of certain unforeseen issues (accidents, damages to properties, effects of force), legal claims, and other liabilities. Without insurance, business owners might be forced to foot the bill out of their own pocket.

What is Professional Indemnity Insurance? 

If you or your business provide professional advice or services, then you’re likely to need Professional Indemnity (PI) Insurance.

This insurance provides and pays your legal defence costs in the event that a customer complains that they followed negligent advice and suffered a financial loss – even if there’s no real basis for the complaint. If there was negligence, PI Insurance will also pay any damages awarded by the court.

Without Professional Indemnity Insurance, you or your business could be faced with having to organise your own legal defence, and pay potentially large legal bills as well as damages awarded by the court. The average claim amount is over $100,000 for legal costs, expert reports, and damages, so it can be a large amount to have to find quickly.

Typical professionals that purchase PI Insurance include:

• real estate agents
• construction consultants
• healthcare or allied health
• IT consultants
• lawyers 
• doctors.

Why is Professional Indemnity Insurance important?

Professional Indemnity Insurance is mandatory for many professions and must be in place before starting a business. It’s recommended that you check with your association or insurance adviser to find out if PI cover is compulsory, and the sum insured required.

For other professionals, although this insurance cover may not be compulsory, it’s an easy way to protect yourself and your business from large financial losses. Even with the best training or risk management, people still make mistakes, contractors can provide incorrect specifications, and advice can be misunderstood.

It’s worth noting that the cover provided by Professional Indemnity is different from Public Liability Insurance which covers defence costs and any damages relating to personal injury caused to people or damage to their property. This is not the same as financial loss caused by an architect placing walls in the wrong location on plans or an IT professional recommending the wrong software.

What does Professional Indemnity Insurance cover?

The exact cover will depend on your occupation and scope of activities. Broadly speaking, Professional Indemnity Insurance covers any negligent act, error or omission relating to:

• misleading, inaccurate or negligent advice; breach of confidentiality or privacy
• breach of consumer, competition, and fair trading laws
• loss of documents
• infringement of intellectual property rights
• malpractice, misdiagnosis, failing to order the appropriate tests, failure to treat
• defamation, libel or slander, including costs of disciplinary proceeding costs, claim investigation and expert reports
• public relations costs
• legal defence costs
• payment of damages.

As you can see, Professional Indemnity is a complex insurance with a wide range of cover options. We’ll work with you to understand your business, provide options to manage your professional risks, and recommend insurance cover.

Frequently Asked Questions

Who needs professional indemnity insurance? 

Anyone who is specially trained, provides advice or service, and is a member of an association or profession can purchase this type of cover. Real estate agents, construction consultants, engineers, healthcare or allied health professionals, designers, lawyers, IT consultants and doctors all need Professional Indemnity Insurance. 

In some workplaces or industries, it is mandatory to have this cover. Even if not compulsory, this insurance is important to protect you and the business from having to pay significant legal costs, as well as damages, if found to be at fault.

How much does professional indemnity insurance cost?  

Professional Indemnity covers you or your business for legal costs and any damages if there is an actual or alleged act, error or omission that causes a financial loss to a client or customer.

Premiums are typically based on:

1. Your industry – for example, construction, IT, or medical, some are at higher risk than others.
2. The scope of your business activities – for example, whether you’re a fire engineer or an IT engineer, the turnover/ revenue and number of employees or contractors.
3. Prior claims experience – the more claims or lawsuits, the higher your premium (and excess) are likely to be.

●    What is the minimum professional indemnity insurance? 

The amount of Professional Indemnity cover you need depends on:

• your occupation and potential for financial loss to the customer if there was negligent advice
• any mandatory requirements of your association
• the level of cover you choose, based on your level of risk, as well as the cost of the insurance.

Because different professions present varying levels of complexity and risk, we recommend talking with your insurance adviser – they are professionals who can work to understand your business and provide you with options to choose from.