Insurance Deliberations

Question

I own a 5 person manufacturing business and have had an insurance agent telling me I need to make sure I have my business well insured. I have all the fire and general business insurances I think I need.

As you can see my business is small, we only sell to the local market and have good relationships with our few main clients. I do not think we need the extra life insurances, ‘key man insurance’, medical insurance and other things he is talking about. It seems very expensive and I’m not sure we can afford it even if we do need it.

Ron.

Answer

New Zealand is a country of small businesses, very export dependent and vulnerable to any fluctuations in both the world economy and our local economy.

There are more than 260,000 small to medium-sized businesses in New Zealand, with fewer than 5 per cent of companies generally employing more than 50 people.

History tells us seventy-five per cent of small to medium-sized start-up businesses fail in their first year.  The small number of people employed in the smaller businesses, our less than huge domestic economy and small market sector’s, all highlight how vulnerable these businesses are to the unexpected intervention of either disability or death in those businesses. 

As a country, New Zealand generally has low levels of life risk and medical/ health insurance cover. This level of cover is even worse for business insurance. 

These low levels of business insurance cover may be due in part also to the fact that business insurance is an area that is harder understand, and it does require some knowledge and skill.

Most people do not die suddenly, only around three percent of all deaths are due to accident.  Rather, they may, for example, become disabled for varying lengths of time with some becoming terminally ill and subsequently dying. 

It is important to be aware of this, as all the stages of the potential disability process need to be considered when insurance solutions are being applied to protect folk from the risks to their businesses, partners, shareholders and dependants.

It is not sufficient merely to offer life cover, as often occurred in the past.
The development of business insurance strategies needs to take into account the business life cycle and where the businesses are on that cycle.

The plan formulated must be designed to reflect the uniqueness of the business.

Planning must not only consider solutions to the results of death or disability intervening. Consideration must also be given to all the other elements, such as succession planning, future capital requirements, superannuation and health cover.

Any analysis should be thorough and reflect the effort taken to understand the customer’s businesses and circumstances.  If this is not the case, then it may result in considerable dissatisfaction at a later date should a claim need to be made.  Suffice it to say it could even lead to litigation. 

Business insurance need not terminate with the death or disablement of an owner, shareholder or key person, particularly if the business survives or the dependants are happy with the protection that had been put into place.