The 7.8 magnitude earthquake that hit in November last year has thrown up some red flags that business owners with business interruption insurance need to know.

AdviceFirst commercial insurance specialist Shona Pope says many business owners were not aware of the natural disaster excesses introduced as a result of the earlier Christchurch earthquake.

For example, a commercial building with a sum insured of $1M could have an excess of between 2.5% and 10% depending on age and location.

Shona explains: “If your office is intact, but you are unable to get into the building to run your business due to earthquake damage in the surrounding area, an insurance business interruption policy may have a ‘prevention of access clause’ that allows you to make a claim. However it’s important to note that any ‘prevention of access’ caused by a natural disaster can have an excess stand down (not covered) period, depending on who the insurer is. Generally, it is between 21 to 24 days.

“For instance, the Wellington premises of one of my clients was not damaged in the earthquake, but were are unable to conduct business from the premises because the neighbouring building had been earmarked for demolition.”

“As a result, while they don’t have a claim under business interruption, because they didn’t suffer any physical damage, they can claim under the business interruption contingency, which is an option that could pay them out between 5 – 10% of the sum insured on their property,” says Shona.

The same issues of not having a claim under business interruption insurance occurs when, for instance, an earthquake stops customers coming to you.

For business interruption to be activated, you have to suffer material damage to your property. If you haven’t suffered material damage, then the contingent business interruption could kick in, but it is a relatively low sum based on a percentage of your sum insured.

Shona says it’s vital to make sure you have the right numbers for your sum insured and gross profit figures: “Don’t rely on estimates. Instead, I recommend you get accurate figures from a professional valuer and your accountant,” says Shona.

It is imperative that you read the policy document to understand the terms and conditions of your policy and talk to your adviser if you are unclear on the scope of cover under your policy. Click here to email our team about your commercial insurance needs.

Your Adviser has a disclosure statement that is available on request and is free of charge. The information in this article is of a general nature only and is no substitute for personalised advice. If you would like advice that takes into account your particular financial situation or goals, please contact your Financial Adviser. The information has been published in good faith and has been obtained from sources believed to be reliable and accurate at the time of publication (March 2017).

AdviceFirst Limited | A Disclosure Statement is available on request and free of charge.

AdviceFirst is a Financial Advice Provider (FSP23242).