Don't Let Your Future Go Up In Flames

Having just left work for the day, the owner of a small retail business received a phone call advising that their fire alarm had been activated. Rushing quickly back to the shop, they found their neighbours attempting to smash through a glass door to try and extinguish flames they had seen. It was too late. The smoke was now too thick for them to be able to help.

The local fire brigade arrived soon after and quickly extinguished the blaze before it spread to the neighbouring premises, but not before it caused extensive damage to machinery, equipment and stock in the workshop.

It was only the second day of trade following the Christmas holidays, and the business was approaching its busiest time of the year - the back to school period.

Loss adjusters confirmed that much of the workshop's contents had been destroyed by flames or badly damaged by heat, smoke and water. As well as stock, raw materials and machinery, the damage extended to furniture, filing cabinets and interior decorations, as well as the shop's computer, fax machine, air conditioner and security system. The exact cause of the fire is unknown, but it is thought that an electrical fault may have ignited flammable material.

This retailer had first taken out insurance when their business was quite small and, like many businesses, they tended to simply renew their policy every year without allowing for business growth.

Nine months prior to the fire, the owner was contacted by their insurer who, having noticed growth in the business, wanted to undertake a review of their insurance requirements. The review identified that the policy didn't include Business Interruption insurance, which would protect their profit if they suffered a major trading disruption.

Luckily, when the business owner realised the additional protection would allow them to reduce their overall risk, they went ahead with the recommended coverage, paying in monthly instalments to even out their cash flow.

Remarkably, the business temporarily resumed trading from the owner's home while repairs and rebuilding were completed at the damaged shop. The owner was still able to pay their sales assistant, suppliers and all the bills that haven't stopped even though they've reduced trading - without worrying about the effect on their profits.

Having Business Interruption insurance has meant that this business was restored to a similar financial position that existed prior to the fire. The policy also allowed for the extra impact caused by the loss occurring during a peak period.

Research* shows that 70 per cent of underinsured businesses that suffer a major loss don't recover.

Without business interruption insurance, this business owner would have found it very hard to stay in business until the shop was back in operation and their sales returned to normal. Having adequate business insurance has allowed the business to continue growing well into the future.


Important note:
* Insurance Council Australia, Report on Non-Insurance and Under-Insurance Survey, 2002.