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Playing the insurance card

Juggling a retail business can be tricky, not least when disaster strikes. Leigh Stockton looks at the very necessary world of insurance for retailers.

By Leigh Stockton | January 26, 2016 | News

There are worse things in life than death. According to comedian Woody Allen, an evening with an insurance salesman is one of them.

Yes it’s true, talking insurance can be about as sexy as a pig wearing lipstick – but not talking about it might result in a business left flailing in the mud.

Here are a few questions for retailers to ask themselves right now:

  • If a disaster suddenly hits my business, will our insurance cover it?
  •  Do I even understand our insurance policy?
  • What am I gambling here if my company isn’t properly insured?

Only one in four small to medium-sized businesses is adequately insured, according to the Insurance Council of New Zealand. And, alarmingly, across New Zealand 28 percent of these businesses do not have business insurance.

“Many small business owners are unaware of the numerous risks within their business and the effect that these risks could have on their ability to keep trading should something unexpected happen,” says NZI’s General Manager Commercial Underwriting, Stephen Everett.

Damaged assets can be rebuilt or replaced but a significant risk to a business comes from having to close for a period of time, or relocate, he says. 

“Policies such as Business Interruption insurance covers not only the loss of income but also continued wages for staff, relocation expenses and even additional marketing costs to get you back up and running again. It’s critical to keep the business going while the cash flow is reduced or nil.”

Less boring now, isn’t it?

It’s not wrong to say that insurance has a reputation for being a whirl of jargon and confusing underwritten clauses. But find a reputable New Zealand broker or insurance provider, and suddenly it’s not. It’s what has kept many businesses afloat.

To find out more, we talked to leaders in the insurance field about the four risk-based stations in the life of a retail business – and what coverage retailers should be asking of their providers at each turn.

Starting out

Small and medium businesses may not have as much in the way of assets as bigger retail chains.

Yet establishing a policy and picking the right insurance provider now will set the course for cheaper premiums and peace of mind later on as the company (hopefully) continues to grow.

The best advice is to shop around for value, but look first to companies with a solid reputation and history in providing business insurance to Kiwis.

And it’s so easy to let your fingers do the walking these days – most top insurance companies now offer guidelines and quotes on their websites.

NZI has produced two useful self-assessment tools which are published on its website (nzi.co.nz): The Small Business Risk Management Guide, a free guide to all small businesses, which is designed to help SMEs understand and prepare for any risks in business; and The Risk Management Programme, which aims to help commercial customers remain in business.

Sites such as BizCover (bizcover.co.nz) also offer a quick and simple process for SMEs, including retail.

While the internet is a handy and quick tool for researching insurance, it’s still strongly recommended that retailers talk to an independent insurance broker to work out their needs from head to toe. Keep in mind that whether you’ve chosen the online or broker route, it’s up to the customer buying the insurance to read and understand policy exclusions – so be thorough before signing on the dotted line. 

Identifying the risks

It’s tricky to forecast the future, especially when starting out. To help, a business risk health check is standard for brokers and providers to talk through with customers.

“Cover can be reasonably cheap and good value for the levels of cover and policy limits offered,” says Darrin Barclay, country manager at BizCover Insurance.

“Small retailers should focus on protection of their stock in the form of material damage policies, the ensuing loss of income in the form of a business interruption  policy and their potential liability to customers and the general public in the form of public liability insurance.”

Understanding the unique risks in the retail industry is key. We’ve made a checklist, but do remember that meanings of policies and their cover will differ depending on the provider:

- People

Potential liability to customers, staff and the general public can be protected in the form of public liability insurance cover.

If a business does any damage to a third party, this insurance solution may keep the company covered. Take some time to understand how crucial this cover is to your business as a retailer. Spilling coffee or dropping food over a customer’s computer or a loose floorboard in the changing room which sees a shopper fall over while trying on a garment can be all it takes.

- Damaged assets

Due to the general popularity of a retailer’s products, they might be more susceptible to burglary and theft, and a material damage policy is a particularly helpful cover for a small retailer. Stock cover insurance would help to cover the cost price of your stock if there were to be any damage. Good risk management can also help reduce the risk of the burglary to premises. Some brokers will be able to provide a checklist.

- Business interruption

If a big disaster hits and you do actually have to file a claim, it’s likely business will be interrupted and cash flow will stop. Business interruption cover will help retailers continue to trade while damage is being fixed (see more in Flying High).


- Transport

How is stock getting to and from the stores and warehouse? For those retailers who have vehicles to get stock to the right places, ask about vehicle and transit insurance.


- Security risks

Retailers will want to ensure that good risk management is in place to help reduce the risk of fire and burglary to their premises. Insurance brokers can help provide guidance and support in this respect.


- Holiday season

The pre-Christmas shopping rush is revenue heaven for many retailers, and higher stock levels need to be accounted for. Ask about a seasonal stock adjustments clause that will increase cover during specific months, as scheduled by the policyholder. This clause is often an optional policy extension within a material damages policy (and will add cost to the premium).


- Stock housing
A policy should allow for multiple locations if relevant (including storage locations). Retailers are often dependent on others for stock and for ensuring that stock arrives when they need it. A retail chain will likely have its own warehouse and will manage supply to the retail outlets. A smaller retailer will need to source stock themselves.

In both cases, it is important that damage at the supplier’s premises is covered as it will have a knock-on effect to the retailer. Something as simple as the theft of silver from the maker of boutique jewellery will mean that stock doesn’t arrive at the retailer when needed. This may impact sales, and can be covered by insurance via supplier’s extensions.

- Flying overseas

Many New Zealand based businesses will need to factor in insurance for their overseas supply chain or subsidiary offices abroad. While multinational groups will usually have cover in place, a New Zealand retailer sourcing from overseas needs to be clear where their products and stocks are covered, and that they are certain of their free on board and cost of freight terms.

“Most New Zealand-based policies will have, at least, allowance for worldwide cover other than USA and Canada, who provide their own particular territorial risks,” says Barclay.

While retailers and their employees can be covered overseas under a public liability cover, this does not extend to loss of any personal effects or medical cover if their workforce are travelling outside of New Zealand.

“Corporate travel policies are also available to provide cover for medical, baggage and cancellation woes,” Barclay says. “In most instances these covers are far broader than the standard covers attached to credit card travel purchases.”

Right – the stores are insured, the business itself is covered, and all is going well. It’s time to spin the wheel to…

Flying high

Week by week, the store’s sales are exceeding budget, with happy customers clamouring to buy the merchandise on offer. The fit-out is a point of pride, and staff are easily managed by a fantastic store manager. Things are ticking along wonderfully. You’re flying high.

This is exactly the time – believe it or not – when retailers should be reviewing their policies, putting protective measures in place and thinking about the risks involved should a disruption to business happen. “Having an insurance policy that can offer a quick solution to a problem is critical to business survival,” says Everett.

Business interruption

No-one ever expects the unexpected, but it happens. This is where business interruption cover comes in. It can provide cash flow which would have been reduced hugely – or even eliminated.

Every insurance company lends a different meaning to this type of policy. Here’s one interpretation:

Insurance for business interruption often falls under an overarching policy (usually property insurance) that gives essential cover should an unforeseen event or disaster hit your business – be it a flood, burglary, fire, etc. This cover often includes the provision of income during the time the retailer is unable to run their business as usual. It’s also known as business income insurance.
 

If finances are tight, business interruption can be a great way of having cover in place that will protect retailers from a sudden event.

“If the right insurance is in place, the cover will provide a cash injection when it is most needed,” says Grant Hill, head of products at ANZ Insurance.

“This will help the business to get through the difficult period and assist in ensuring the business can continue to operate.”

NZI’s Business Interruption insurance covers loss of income, continued wages for staff, relocation expenses and additional marketing costs to help get the business back up and running – policies such as these can prevent the business from going under.

Disability insurance

Another option to look out for. A critical injury – or even a death – of a key person such as business owner, CEO or manager may mean a drop in revenue or sales or falling behind a competitor (after spending years building a significant reputation).

Debt protection

If there’s a loan against a business, a debt protection plan can protect it from the implications of this loan should a key worker sustain an injury at work, which will then prevent them from being able to do their job.

“We recommend that if there is any form of debt that relies on the ongoing revenue from the business to service that debt, then this is protected through business insurance,” says Hill.

“The sudden loss of a key person can not only affect revenue but may also affect the business’s ability to repay that debt.”

Shareholder protection

If a shareholder is gravely ill, or passes away, things may get messy if insurance plans aren’t properly in place.

Instances of the shareholder having personal debt (such as a mortgage) linked to the company are common within SMEs, and may be covered under a shareholder protection policy. It pays to shop around for one tailored specifically to the company’s needs.

It’s also important to have the legalities in place for what happens next.

“It’s advisable for shareholder protection to be put in place for business owners at outset of any business partnership agreement, together with a buy/sell agreement,” says Hill.

“In the event of a death or illness this provides clarity on how the business will continue without that partner/business owner. It also provides clarity for the family of the business owner.”

Employee perks

Don’t forget that among the risks for a retail business, insurance will be a valuable asset to one of retail’s most valuable assets – the staff.

Research shows that group health insurance is one of the most desirable perks a business can give to their employee. Taking care of staff in this way is essential: according to Accuro Health Insurance, employees with health insurance are more likely to be treated and return to work up to three months faster than employees without access to private treatment.

“The most common type of staff health insurance is subsidised cover,” says Geoff Annals, CEO of Accuro Health Insurance.

“This is when the employer pays for the entire cost of the premium. Our subsidised plans don’t require any underwriting, which means we provide cover for any pre-existing conditions.”

If an employer offers non-subsidised cover, this is called voluntary group health insurance, says Annals. 

Voluntary cover provides health insurance for staff at a discounted rate, but the staff member is responsible for paying for their own premiums.

“Members of a voluntary group need to be fully underwritten and won’t have any pre-existing conditions included in their cover,” says Annals. “It is up to organisations to determine what level of cover they can afford to provide.”

So, feeling organised yet? Having these policies in place may save more than a few pennies, especially when it comes to…

That sinking feeling


Flying a little too close to the sun? Seeing that profit margin dip suddenly? A business may start to cut corners when trying to get through a niggle, and too often the level of insurance cover can take a hit.

Beware of scrimping on insurance cover to save money, however. Taking this risk can end up being costlier in the long term. Don’t leave your business’s fortune to the gods.

Another reason why insurance is integral at this time: “Business insurance covers are underwritten financially and it may be difficult to get insurance when things are trending down,” says Hill.

“If a downturn happens and you haven’t put the right insurance in place when you are flying high, some insurers may still consider your position for insurance – but it’s less likely it will reflect the level your business was at on your upturn.”

Insurers may consider this on an individual basis, says Hill.

“It entirely depends on the situation and reason for the downward trend. However, the very essence of having insurance is for protection against the unknown – and looking to put it in place after an event has occurred would mean that that event will not be covered.”

Barclay says retailers wanting to ensure their insurance is up to scratch can begin by identifying their own appetite for risk. He suggests they ask the following questions:

- What can their business afford to go without?

- How long could their business survive without revenue after an interruption?

- How much can they pay an aggrieved member of the public who has suffered a loss as a result of their business activity?

Understanding the answers to these will help retailers identify the risks associated with their business and what levels of cover need be purchased.

Saving on premiums

If money is tight, a good way to reduce premiums is to take a higher excess on your policy, says Everett.

Insurers often acknowledge loyalty too, so sticking with the same insurer in times of struggle may work favourably for retailers.

NZI says some of the factors that will be taken into account when calculating your premium are:
 

- Whether the retailer owns or leases the building.

- The value of the assets, the turnover and profit figures.

- The attractiveness of stock from a theft perspective.

- Issues related to the business’s location, such as your store’s proximity to natural hazards like flood risk from a river.

- Whether the business operates from a home based office.

Also to note: businesses that haven’t had their policy assessed for a long time are likely to be paying too much. Pick up the phone and book a reassessment.

Underwater – in the thick of it

The wheel’s turned to misfortune. Disaster has struck. Let’s talk about the moment a business has to make a claim.

There will be situations where having comprehensive insurance hasn’t been quite enough. Throwing money at an inclusive policy will be futile if your financial or stock records are not in order. If the worst does occur and an unforeseen event happens, businesses will need to provide evidence of their loss.

These days, stock control and sales are usually managed electronically. It’s important to be able to have access to that data if point-of-sale equipment is damaged.

“Backing up information regularly to a cloud-based facility, or even to a separate hard drive kept off the premises, will help keep information safe and accessible. Linking in with providers, such as Xero, also provides a backup solution”, says Everett.

Spotlight on natural disasters

The Canterbury quakes were a harsh awakening to the potential of significant natural disasters, and how vulnerable our small volcanic country is. And according to the Insurance Council of New Zealand (ICNZ), Kiwis continue to be at risk from the effects of a tsunami from our Pacific neighbours.

The ICNZ estimates that Canterbury will benefit from more than $20 billion in reinsurance money through EQC and private insurers – a sum representing more than 15 percent of this country’s GDP.

New Zealand not only has exposure to significant fault lines from an earthquake perspective, but is also exposed to wind-storm, snow-storm and flooding events, droughts, coastal erosion, tsunami, geo-thermal activity and volcanoes, says Everett.

“Having insurance protection to help manage the risks that these might present means that people can go about enjoying all the great things about living in New Zealand.”

Accidents

When it comes to injuries, New Zealand is blessed with ACC, a no-fault system – and so there’s no ability to sue anyone should an accident happen. However, watch out for the following:

- If a preventable accident occurs at a business, Worksafe can investigate it. Companies can be prosecuted under the Health and Safety Act, with awards made by the courts. Statutory liability insurance is a great measure to protect companies from this.

- The death or injury of a key person such as a CEO can be catastrophic for a business. As previously mentioned, key person insurance can be valuable in this case, although not all insurers offer it. An alternative is income protection insurance (generally only for businesses).

- In 2016, Statutory Liability and Employers’ Liability cover will become more important than ever, as there are changes coming to the Health and Safety Act, with more onus on directors’ liability.

Ryan Clark, National Manager Liability for NZI, says: “When these regulatory changes are implemented, both businesses and persons in managerial positions will be responsible and held accountable for their actions and non action in providing a safe work environment for their staff.

“They should therefore consider transferring the potential financial risk of defending an allegation or investigation away from the company’s balance sheet by having an appropriate insurance policy such as Statutory Liability insurance.”

- The level of public liability cover has changed radically in the last 30 years, says Barclay. “The level of legal awards and legal settlements has changed and it is rare to see a public liability policy for less than $1 million these days.”

Claims can range from negligently causing damage to clients’ property, food poisoning, slips and falls on the company’s premises, and incorrectly installing equipment – also death and permanent injury.

Public liability is an extremely useful cover for retailers and their employees who regularly travel abroad.

Playing the wheel of fortune

There are certainties in retail life – one of these is that bumps in the road will surely occur when they’re least expected. And insurance is just one of the measures a retailer can take to reduce those risks to their retail business.

When starting out, ensure you’ve put relevant insurance solutions in place, and that they’re unique to your company’s needs. If your retail business is at the top of its game, this is the time to put protective measures in place. When the rain sets in, however, don’t be caught out - pick up the phone and talk to the insurer about flexible tailored solutions, and if a disaster ever strikes, have documents and files in place to make the claim go as smoothly as possible.

This will help retailers focus on what they do best – grow customer loyalty, generate revenue for their business and cultivate a great product.

[Sidebar]

Earlier this year, major insurance provider NZI and online accounting software Xero partnered up to create the insurance add-on, CoverKit.

Xero users are able to pull business information from their account using the add-on, which gives key information about their specific needs to show to a broker.

“CoverKit is set to be a game changer, making it so much easier for customers to access the information they need for broker advice,” Victoria Crone, of Xero, said at the Xerocon conference in May.

“Thereby providing peace of mind in what can be a very stressful area for small businesses.” More details can be found at NZI.co.nz

This content originally appeared in the December 2015/January 2016 issue of NZRetail magazine.

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