Insuring business activities
Disruptions to your business can be stressful and come with big costs. Insurance is a product you can buy to protect you and your business against specific risks.
You pay premiums to an insurance company – often monthly or annually – and the insurance company promises to help if something goes wrong, for example by paying for repairs, replacements or covering costs.
The risks you face and the policies available to cover these risks vary from business to business, and by industry.
Watch: Be prepared, get insured
Transcript
[Audio/Visual: Upbeat music starts playing with blue introduction screen with white business.govt.nz logo. The words “Be prepared, get insured” appear on screen for a few seconds. The screen cuts to a profile shot of the male presenter against a blue background. He is wearing an ivory blazer over a beige dress shirt.]
Unexpected disruptions and disasters can be stressful and expensive for your business. Thankfully, insurance can help protect you against specific risks. But how does it work?
You pay premiums to an insurance company — often monthly or once a year — and the insurance company promises to help if something goes wrong, like paying for repairs, replacements, or covering costs.
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The risks you face and the policies available to cover these risks vary from business to business, and by industry.
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[Visual: the screen cuts to a shot of the presenter on the left hand side against a blue background. A title appears in the top right of the screen in white, bold text “Common risks include”. A subtitle appears underneath the title “Natural disasters”. Below this, bullet points appear as the presenter lists them:
- Floods
- Fire
- Earthquakes]
Common risks include:
Natural disasters, like floods, fire, and earthquakes.
[Visual: the subtitle changes to “Theft of things”. Bullet points appear below this as the presenter lists them:
- Equipment
- Stock damage
- Loss in transit
- IT crime
- Hacking]
Theft of things like equipment, stock damage, loss in transit, IT crime or hacking.
[Visual: the subtitle changes to “Injury or Property damage”. Bullet points appear below this as the presenter lists them:
- Products or services
- Product recall
- Employment dispute
- Health and safety breach.
After a few seconds, the title, subtitle and bullet points disappear from the screen.]
Injury or property damage caused by your products or services, product recall, employment dispute, or a health and safety breach.
No single policy can cover all your business risks so it’s likely you’ll need more than one.
So, let’s talk about the most common policies.
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Asset insurance can cover theft and damage items you own and use for work, like computers, furniture, tools, specialist equipment, vehicles and stock. There are two main types.
[Visual: the screen cuts to a shot of the presenter standing on the left hand side against a blue background. A title appears on the top right of the screen in white, bold text “Asset insurance”. Below the title, a bullet point appears:
- Indemnity]
Indemnity is the most common policy type, which takes wear and tear into account when paying your claim.
[Visual: a second bullet point appears below the first:
- Replacement]
The other is replacement, which pays the full costs of replacing an item.
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Commercial property insurance is typically taken out by the owner of the property.
[Visual: the screen cuts to a shot of the presenter on the left hand side of the screen. A title appears on the top right in white, bold text “Commercial property”. A subtitle appears underneath the title “Material damage policy”. Below this bullet points appear as the presenter lists them:
- Natural disasters
- Fire
- Burglary.
All text disappears after a few seconds.]
It’s usually in the form of a material Damage policy, covers you, and any lender that you have borrowed funds from for your business, from natural disasters, and other events such as fire and burglary that cause loss or damage to stock, plant, business contents and buildings. You don’t usually take out this insurance if you lease your business premises.
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A business interruption policy covers you when your business is interrupted by natural disasters, fire and burglary-
[Visual: the screen cuts to a profile shot of the presenter on the left hand side of the screen. A title appears on the top right in white, bold text “Business interruption”. Below this, bullet points appear as the presenter lists them:
- Commercial property material damage policy
- Interruption losses
The bullet points disappear after a few seconds.]
(events that are covered in a commercial property material damage policy), and you suffer losses because of the interruption.
[Visual: new bullet points appear below the “Business interruption” title as the presenter lists them:
- Wages
- Rent
- Utilities]
It covers you for an agreed period so that you can still pay wages, rent and utilities and have some funds left over for profit. You can take out this type of policy if you lease your business premises.
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Liability insurance is useful if you do work for other organisations.
[Visual: the screen cuts to a profile shot of the presenter on the left hand side of the screen against a blue background. A title appears on the top right in white, bold text “Liability”. Bullet points appear below this as the presenter lists them:
- Legal expenses
- You or your employees]
It covers the costs if an organisation sues you or one of your employees.
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- General liability cover]
There are several types of liability insurance, but we recommend that all businesses and self-employed people have the most basic - general liability cover.
[Visual: the screen cuts to a shot of a man working at a desk with three monitors. The screens show a map, data visualisation and an email inbox. After a few seconds, the screen cuts to a shot of the presenter on the left hand side of the screen against a blue background. A title appears in the top right in white, bold text “Cyber security”. Bullet points appear below this as the presenter lists them:
- Data breaches
- Website hacking
- IT scams
All text disappears after a few seconds.]
Cyber security insurance is a broad area covering data breaches, website hacking and IT scams. Make sure the policy you choose covers your areas of risk.
There are many other types of insurance that may apply to you, depending on what industry you’re in. Including:
[Visual: a title appears in the top right in white, bold text “Other types of insurance”. Bullet points appear below this as the presenter lists them:
- Marine insurance
- Travel insurance
- Transit insurance
- Product recall
- Trade credit]
Marine insurance, travel insurance, Transit insurance, product recall, and Trade credit. We’ve included more details about these in the learning summary.
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Even if you’re just starting out, it’s a good idea to start thinking about your insurance needs right away — even if these needs are very basic.
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It’s always a good idea to review your needs each year to make sure your growth and changes are taken into account.
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And when setting your insurance budget, think about the cost of NOT having the right cover, and how that could negatively impact your business.
When it comes to making a decision, here are some common risks to avoid:
[Visual: the screen cuts to a profile shot of the presenter on the left hand side of the screen. A title appears in the top right “Common risks to avoid”. Below this, bullet points appear briefly before disappearing:
- Not reviewing]
Not reviewing the sums insured — make sure you review how much you need covered at least annually, or after any major change to your business.
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- Not disclosing important changes]
Not telling your insurer about important changes, like to your business model — you can’t claim for something not covered in your policies.
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- Not telling the whole truth]
Not telling your insurer the whole truth, for example a legal issue you didn’t mention — keeping back crucial information can lead to a rejected claim.
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- Not getting advice]
Not getting advice. Insurance is a specialist area, and many people wrongly assume they can get one policy — or a package of policies — that covers all their business activities. This isn’t the case.
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Insurance policies often use specific, complex and even confusing language, so an insurance broker can help you to unpick anything that’s unclear, and help you understand what a policy does and doesn’t cover, to find policies that suit you.
[Audio / Visual: The music slowly fades out while a blue outro screen appears with the business.govt.nz logo in the centre of the screen. This logo disappears and the Ministry of Business, Innovation, and Employment logo appears on the left-hand side and the Te Kāwanatanga o Aotearoa, New Zealand Government logo appears on the right-hand side.]
[Video ends]
Find your risks
Working out what your risks are means answering two important questions:
- What could go wrong at work or with my business?
- Have I got it covered?
Common risks include:
- fire or natural disaster, like floods or earthquakes
- theft
- stock damage
- loss in transit
- IT crime or hacking
- injury or property damage caused by your products or services
- product recall
- employment dispute
- health and safety breach.
There are also risks you may not realise insurance can cover, including:
- losing a key staff member
- a sudden drop in revenue
- being sued.
Types of insurance
Assets
Asset insurance can cover theft and damage items you own and use for work – for example computers, furniture, tools and stock.
There are two main types:
- Indemnity – the most common policy type, which takes wear and tear into account when paying your claim.
- Replacement – this pays full costs of replacing an item.
Commercial property
Commercial property is one of the most common forms of business insurance and is typically taken out by the owner of the property. It’s usually in the form of a material damage policy, and covers you and any lender that you have borrowed funds from.
This insurance cover protects you from natural disasters, fire, burglary, and other events that cause loss or damage to stock, plant, business contents and buildings.
You don’t usually take out this insurance if you lease your business premises.
After the 2011 Canterbury earthquakes, insurers now want more information before agreeing to earthquake cover, including:
- when the property was built
- what, if any, strengthening work has been carried out
- what ground it is built on, for example reclaimed land or bedrock
- the property’s seismic rating.
Talk to an engineer if you’re not sure.
If you run your business from home, household insurance doesn’t automatically cover your workspace or assets.
Business interruption
A business interruption policy covers you when:
- your business is interrupted by natural disasters, fire and burglary (events that are covered in a commercial property material damage policy)
- you suffer losses because of the interruption.
It covers you for an agreed period so that you can still pay wages, rent and utilities and have some funds left over for profit.
You can take out this type of policy if you lease your business premises.
To see if this type of insurance is for you, use the checklist on the Insurance Council New Zealand’s Covered website.
Liability
This is useful if you do work for other organisations. Liability insurance covers costs if that organisation sues you or one of your employees.
There are several types of liability insurance. All businesses and self-employed people should have liability cover.
If you’re a contractor, liability insurance might be one of the terms and conditions in your contract.
Commercial vehicle
If you use a vehicle for work, you should at least have third party insurance.
Think about getting fully comprehensive cover if:
- you use your vehicle a lot
- your business has a fleet of vehicles.
Private motor insurance doesn’t cover the vehicle when it’s being used for business.
Key person
If you’re a small business that relies heavily on one person, like the owner or chief executive, key person insurance covers the costs of suddenly losing them.
This is also called key man insurance.
Cyber
Cyber security, and the risks to your business, is a broad area covering:
- data breaches
- website hacking
- IT scams.
Make sure your cyber insurance policy covers your areas of risk. Your broker should help you understand what a policy does and doesn’t cover. If you are sorting out your own insurance, read the fine print to make sure it will help you recover from a cyber attack.
Contract work
Contract work insurance covers you for extra costs while doing alterations to your business premises, for example accidental damage. It doesn’t cover you for liabilities related to work you do under contract to other organisations – that comes under liability insurance.
Marine
There are different types of marine insurance for personal and commercial vessels, like cargo or fishing:
- Hull – this covers damage to your vessel’s hull, not its contents or other parts of the vessel.
- Marine cargo open policy – this covers goods your vessel may be carrying, for example around New Zealand or overseas.
Other types of insurance
These are other types of insurance:
- Travel – commonly used to cover employees going overseas for work, and can include cover for lost baggage, missed flights or emergency medical care.
- Transit – this covers you if equipment or stock is damaged when you or a freight company is moving it.
- Product recall – this covers the costs of recalling a product you make or sell, for example because it’s defective or dangerous.
- Trade credit – if you do business overseas, trade credit insurance covers you for loss of revenue, for example if your customer won’t pay.
When to think about insurance
It’s a good idea to start thinking about insurance when you’re starting out, even if your insurance needs are very basic.
Review your needs at least once a year to include your growth or other changes.
For example, if your revenue is going up, it’s a risk to let a business interruption policy simply roll over annually at the same level. And if you own your premises, check the sum insured will still cover the costs of rebuilding.
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