IAME, Institute of Automotive and Mechanical Engineers, Insurance

Why do small businesses play Russian roulette with their survival?

So, you build a business, work six or seven days a week, long days, long nights for years on end – a journey your young family endures along with you. Why? Because you want to build the lifestyle you’ve always envisaged and to be able to give your kids something better than what you had.

Finally, you’re getting somewhere, you have a good business, a good lifestyle and your life’s plan is on track. So why then do so many business owners play Russian roulette with their survival?

The statistics paint a sorry tale for way too many businesses. These stats can add up to catastrophic outcomes for businesses that are underinsured, or, even worse, have no insurance at all. Especially when it comes to Business Interruption (BI) risks.

Statistics

  • 32% of SMEs admit that being unable to trade is their biggest concern (Vero) YET…
  • Nearly 65% of SMEs don’t buy Business Interruption insurance (Insurance Industry)
  • Only one in ten businesses will survive after a major loss in the absence of adequate cover (LMI Group)

The disconnect

Given the above, it would seem there is a disconnect here.

Business owners would hardly contemplate not insuring the physical assets of the business, recognising its vulnerability to loss from fire, storm, flood etc.

Yet, amazingly, businesses often fail to come to the next logical conclusion – severe loss or damage to those assets will automatically lead to disruption of the business operations. For instance, premises and production plant are severely damaged – where are you going to work from, how long will it take to repair/replace plant, where are the next sales and payroll to come from?

Even if capable of being outsourced, there is a time element to do so and, invariably, an extra cost to the bottom line.

It is rare to encounter a business where severe physical loss or damage DOES NOT lead to business interruption with all its consequent extra costs to the bottom line.

Insuring the physical assets is merely half the solution to protecting the survival of the business.

Are business owners to blame for not taking up business interruption cover?

Business interruption insurance can be a little complex and the stark reality is that most business owners don’t understand how the coverage operates and unfolds to protect their business and their revenue or profit. Nor are they cognisant of what actually happens in the event of a loss and the sorts of costs they will incur to keep their business running and maintain their desired level of revenue or profit.

However, here’s the rub…having run large insurance broking teams for a number of organisations, it’s clear to me that many insurance brokers themselves are not sufficiently conversant with the coverage and secondly, they don’t delve deeply enough into a client’s operation in order to advise them sufficiently and articulate the need. Because of this, some brokers actually steer away from having deeper discussions around this critical coverage.

Therefore, the poor statistics remain!

What should business owners do?

As a business owner you should invite these discussions with your broker and seek a detailed understanding of how the coverage operates.

A good starting point for all business owners is to think about a ‘disaster recovery plan’ even if this is a simple approach to documenting what will happen from day one of a major loss through the first 12 months (sometimes longer depending on the business). This will help to crystallise some of the actions and costs that are involved and how you can protect your business. Your broker should be leading these discussions, and if they aren’t, you should evaluate the level of advice and expertise you’re receiving.

What does all this really mean?

At the end of the day this is about what you have built and why. How much are you willing to gamble by ignoring this form of protection, considering the stakes indicated by the statistics?

I was talking to a prospect recently – he’s built a great business with about 60 employees, a national spread and healthy profit. But he’s opted for limited business interruption coverage.

What this really meant for him is that if the worst occurred, all his best laid plans of retiring in five years and living the life he always dreamed of would be out the window and he could be left battling to save his business and his livelihood.

Take away

Of course, underinsurance, or lack of insurance is not limited to just risks stemming from business interruption. Exposures such as cyber (the somewhat new kid on the block), professional indemnity and even basic fire and others, if not dealt with appropriately, have the capacity to derail your business and your life’s endeavour.

However, business interruption insurance remains a long standing ugly statistic that is commonly overlooked, even when it’s one of the biggest risks facing the vast majority of businesses.

Business Interruption Insurance is an affordable, extremely flexible coverage that will prevent insurable catastrophes from derailing your business. It’s a coverage designed to put you back in the same position you were before the loss… frankly it’s a no brainer.

These statistics are real, they tell a sad tale for too many. Don’t gamble with your future! You’ve spent a lifetime building it, seek out good advice and act upon it!

Contact IAME’s Insurance Partner, Acacia Insurance

Need help or want more information? Contact us on [email protected]urance.com.au or +61 414 290 446.


This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.