All aspects of Insurance
When thinking about insurance for your franchise business, it’s important to cover all bases.
To effectively insure your business, I encourage small business owners to sit down with an expert insurance adviser who can tailor the right insurance cover for them from a suite of products to ensure all aspects of their business are protected.
Many franchisees, for instance, will insure their premises, their equipment and their employees, but overlook business interruption insurance.
Never has the message that this kind of insurance is vital for small businesses and franchisees been better illustrated than in some interesting research we recently conducted.
Interruption threatens closure
CGU recently conducted a survey of nearly 500 small businesses in regional and rural Australia and found that one in four would not survive if they had to close their doors for three months.
This survey of small business owners found that:
• 25 per cent would have to shut down if they experienced a business disruption such as a major fire or storm.
• This figure jumped to 38 per cent if the shutdown happened during a busy period in the year for that business.
• A further 23 per cent of business owners said their business would struggle to cope with a three-month closure, and their business survival would be threatened.
Despite these findings, less than a quarter of these small business owners were covered by business interruption insurance – insurance which would protect them in the event of such an incident.
Business interruption insurance covers the shortfall in gross profits caused by the interruption to a business, helps pay ongoing costs and protects profit margins until the business is back on its feet and back at its profit level before the interruption. Realistically, any business interruption could be a major setback for a small business.
This is one example where many small business owners find themselves without appropriate insurance protection; there are other danger areas too. A simple way of tackling the many factors to consider when weighing up an insurance package is to follow the three ‘Cs’ – cost, cover and claims.
For many franchisees, cost will be the number one consideration and they will be looking for a competitive premium.
Your franchise may have a special insurance scheme in place designed for the type of franchise you own or manage to save you looking for someone to insure your business and you will be directed to an insurance adviser or broker to arrange this insurance.
It is important, however, that you consider this deal carefully – while it may offer a broad cover and a competitive price, does it really suit your business needs? The bottom line of your insurance premium may be irrelevant if the cover you have arranged and the claims service is not going to suit your business.
It is important to ensure that the cover you choose for your franchise business covers all the activities you are doing. For example, you might be a franchised roadhouse, but you hire out snow skis, or you may be a travel agency that conducts extreme sports tours. Each of these activities may not necessarily be part of the insurance that is provided under the standard franchise arrangement cover.
In purchasing your business insurance, you should consider your vulnerability to size and frequency of a loss.
Covers that protect you for a sizeable loss include Fire, Business Interruption, General and Professional Liability, and Personal Accident.
It is important under Fire insurance to get the sums insured right, so that you have adequate replacement value. In simple terms, selecting a sum insured at 60 per cent replacement value means that in the event of a claim an insurance company may only pay 60 per cent of your loss.
Then there is the previously mentioned Business Interruption insurance, which protects your business from loss of profits after an insurable event, such as a fire. Liability insurance is critical. For example, if you are a retailer and someone sustains an injury in your shop, and you are negligent, liability cover will protect your business from legal costs, medical bills and damages. Your insurer and insurance adviser will help you effectively manage these claims too, so you are not alone.
Another example may be if you are a service franchise, such as a handyman business. Your line of work exposes you to a higher risk of liability for damage to other people’s property and third party injury, so liability insurance becomes an even greater priority. When considering other types of insurance protection, you can also buy covers that protect you from frequency-type losses that impact your cash flow. These include Burglary, Money, Glass, Machinery Breakdown, Employee Dishonesty and others.
Often the first line of protection against these events comes in the form of risk management – for Burglary this may include good security protection, or for Machinery Breakdown, having your equipment regularly serviced.
When selecting these types of covers, you should consider what the likely size or cost of loss may be and then determine a sum insured to protect that exposure.
Your franchise and insurance adviser should be across all the inherent types of losses that may happen and should have arranged insurance to cover these types of events. But don’t just assume – always ask questions.
The claims process is when your insurance policy goes to work for you – you’ve paid your premium and now it’s time to call in the promise that has been made to you by your insurer.
When it comes to claims, there are a number of factors to consider:
• It is likely that a claim could happen at any time of day or night, so look for an insurer with a 24/7 claims service.
• Contact your insurer sooner rather than later. Your insurer can help take control of the situation and arrange repairs that could minimise the inconvenience to your business, and can manage any potential liability claims or legal issues before it’s too late. Your insurance adviser can also help you through the process. A liability claim or legal issue can be a stressful time for you as a business owner and your insurer is there to help ease the load and let you get on with what you do best.
• Some insurers have preferred suppliers who can offer a guaranteed service level not otherwise available to you.
• When buying your insurance, be sure to ask for your insurer or insurance adviser’s contact details so you have them on hand in an emergency.
• Larger insurers typically have greater capability to respond to crisis events, such as significant weather events. In an emergency, you want your insurer to be accessible and on the ground, a service that smaller organisations may not have the scale to support.
Finding the right insurance adviser
So now that you know what to ask your insurance adviser, how do you find the right one?
Firstly, look for an adviser who has worked with similar businesses to yours – this may mean asking them if they manage customers similar to your business. Secondly, make sure that your insurance adviser is asking the right questions about your business and what you do – it’s vital that the adviser understands the nature of your business. Finally, you should expect the adviser to come back with more than one option, as well as a recommendation on which insurer to go with and why – not just the cheapest price.
To find an insurance adviser in your area, we’ve created a handy tool on the CGU website – simply go to www.cgu.com.au/cgu/find-adviser
Twain Abbott is the National Underwriting Manager of SME Business at CGU Insurance. Twain has been in the general insurance industry for 30 years, focussed on the sales and underwriting fields. He is passionate about the role insurance plays in supporting small businesses and enabling them to prosper and grow.
CGU is the largest provider of general insurance to Australia’s regional and rural communities, one of Australia’s leading small business insurers and a leading workers’ compensation provider. CGU offers a comprehensive range of commercial, rural and personal insurance
products through a network of over 1,000 insurance advisers and business partners.
CGU has been operating in Australia for 160 years and is part of Insurance Australia Group (IAG).
This is general advice only and does not take into account your individual objectives, financial situation or needs (‘your personal circumstances’). Before using this advice to decide whether to purchase an insurance policy, you should consider the appropriateness of it having regard to your personal circumstances.