Business insurance explained

Date: 23rd July 2020

The coronavirus pandemic and last year’s floods in Wanaka have been a timely reminder that events beyond our control will inevitably happen, and as the saying goes; it’s better to be safe than sorry!

large open plan office

It’s important to understand the different business insurance options available for when these unfortunate situations occur (or, indeed, if business insurance options do exist). Here, we’ve also given you some handy tips on how to reduce the risks involved.

Public liability

Public liability insurance is essential (sometimes mandatory) for businesses. If a person or their property is damaged during your business activities, this insurance covers against compensation claims not covered by ACC. Simply put, if your business could potentially cause loss, injury or damage to another person, or person’s property, then you should have public liability insurance.

Risk Reducing Tip: In the construction industry, there’s a higher risk of harm due to the materials, tools and equipment used. Trade businesses should invest in training where necessary, to ensure employees can operate task specific tools competently. 

Statutory liability

If your business accidentally breaches an Act of Parliament, e.g. the Fair Trading Act, and your business is prosecuted, statutory liability covers expenses from investigation, such as reparations or defence costs.

Risk Reducing Tip: Safety in the workplace has seen a huge reform in NZ in recent years, resulting in the Health & Safety at Work Act 2015. There’s a strong emphasis on responsibility and awareness, so it’s essential to be fully versed in this document. Make health and safety a priority!

Employer’s liability

If an employee suffers a work-related injury or illness (not covered by ACC) and successfully sues their employer, employer’s liability covers the business for compensation payments and defence costs.

Examples: Stress injuries, depression or anxiety, disease or infection from an unhygienic workplace.

Risk Reducing Tip: Promote mental health and wellbeing in your workplace by providing a supportive, open working environment. Check out the Five Ways to Wellbeing at Work Toolkit from the NZ Mental Health Foundation as a helpful starting point.

Professional indemnity

If you provide advice, opinions or design specifications as a business, professional indemnity insurance covers you for mistakes, if a customer is looking for compensation for an unsatisfactory result. This is particularly applicable for design work which can be open to interpretation.

Risk Reducing Tip: Keep a clear communication trail with clients by documenting conversations – face-to-face, on the phone and online. You could request clients to sign off on meeting notes for added peace of mind.

Director’s and officer’s liability

Directors and senior management can be held personally liable for actions or failings within a business, such as employee or shareholder grievances. This insurance covers expenses incurred such as defence costs.

Risk Reducing Tip: The laws around employment and HR are very specific and not to be taken lightly. When in doubt, seek legal advice. There are some great online resources, such as Employers Assistance Ltd.

Business vehicle insurance

This insurance works in the same way as private vehicle insurance, but if vehicles are key your daily business operations, then consider getting insurance which covers you for loss of use while vehicles are being repaired.

Risk Reducing Tip: Vehicles are notoriously unreliable, so expect the unexpected! Set aside time for regular vehicle checks and develop a system that works for your business to stay on top of general maintenance.

Material damage insurance

Material damage cover insures a business owner against loss or damage to physical assets such as buildings, contents, plant and equipment, equipment, fitout and stock. It is often purchased as part of a broader business insurance solution and may include theft and fraud cover.

Risk reducting tips: invest in good quality security systems (including a safe for holding cash if needed), smoke and fire alarms.

Business interruption insurance

A Business Interruption policy works in conjunction with a primary Material Damage policy and will activate after a loss has been paid under the Material Damage policy. It requires that the business suffers a loss of profit or turnover or increased costs due to damage to assets insured (buildings, plant, equipment, stock etc).

If you’re wondering about coverage for business interruption caused by an infectious disease or pandemic such as coronavirus, because in this case there is no damage to an insured item under the Material Damage policy, there is no trigger for the Business Interruption policy. Apart from a handful of industry specific cases, no business interruption insurance policy will cover the risk of infectious disease, war, nuclear related damage, etc.

Risk reducing tip: if there is one thing we have learnt from recent events is that having emergency savings, along with an emergency plan and business continuity plan is a great idea. More information on emergency planning can be found at business.govt.nz

Cyber insurance

If your businesses I.T. system and data security is breached, cyber insurance covers you for any financial losses. It also covers you if a third-party claims compensation, e.g. for not keeping private data secure.

Risk Reducing Tip: Develop a cyber security policy for your business so your employees and I.T. management are all on the same page when it comes to staying technology safe.

Life, health and disability insurance

If you, or any of your key staff are unable to work due to illness, injury or death, there are a range of insurances that protect your business from costs incurred and to ensure your business continues to run as best as possible.

Risk Reducing Tip: Take the time to make a back up plan and strategies to prepare your business for unexpected event. It’s important to have this plan communicated and documented.

When it comes to insurance, we recommend consulting with a professional to make sure you have all the boxes ticked and your business is covered in its entirety.



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