Making the right choice for your growing business
Business insurance plays an important role in the modern-day risk matrix. Ensuring your business has the adequate level of insurance is critical for ongoing longevity, growth, and holistic protection.
Depending on business size, the core policy options for a small to medium size business is a 'Business Pack' – which primarily addresses necessary cover attributed to peril related impacts, where larger business tend to opt for an Industrial Special Risks (ISR) policy.
Often overlooked during expansion periods, adjusting the level of insurance cover to align to the businesses' current state is a pinnacle part of business operations. Understanding the business needs and growth strategy is important when considering whether a Business Pack or ISR policy provides the right level of cover.
McCullough Robertson and our insurance advisory service, Allegiant IRS, can assist you with a review and assessment of your current insurance policy to ensure you have appropriate cover. We can also guide you through the process of redesign, placement and renewal of insurance cover for your business to ensure that it indemnifies your business inline with your current or anticipated risk profile.
In this article, we look at the 'business pack' and ISR policy options.
Overview – Business Pack insurance
1.1 Business Pack (commonly called Biz Pack) insurance policies are designed to provide cover for loss arising out of specifically defined events (perils) which might commonly be encountered during the course of business. The sections of cover will often include loss caused by:
(a) Material damage;
(b) Business interruption;
(c) Machinery breakdown;
(d) Public liability;
(e) Personal accident;
(f) Fraud and dishonesty; and
(g) Electronic equipment.
1.2 Optional cover such as theft or burglary, money, glass and goods in transit are also available under various Biz Pack policies, upon selection.
1.3 A Biz Pack policy removes the burden of smaller businesses having to maintain several separate insurance policies by combining them in a single policy document.
1.4 In the event of a claim, a Biz Pack holder must demonstrate that the loss was caused by a specifically defined event. If the loss does not fall within the specific event as defined, there will be no cover. Therefore, Biz Pack holders must carefully consider the sections of cover which they require and purchase appropriate cover for risks. The other challenge for Biz Pack holders is that they will bear the onus of establishing that the event falls within the defined cover.
1.5 If selected under a Biz Pack policy, business interruption cover primarily provides cover for the loss of profits or income derived from a business, but cover is only triggered where there is damage to the insured property.
Overview – ISR insurance?
1.6 ISR insurance is a broad form of property insurance that covers all loss caused to property of every kind and description, unless excluded. It is also referred to as an 'all risks' policy. Unlike a Biz Pack, all losses are covered and the ISR insurer may only deny a claim if it can prove that an exclusion applies to the loss event. Common exclusions include wear and tear, flood and machinery breakdown (unless otherwise specifically insured).
1.7 To attract cover, the insured property must belong to the insured. Alternatively, the insured must be responsible for the property, or have assumed responsibility to insure it.
1.8 ISR policies are commonly issued on what is referred to as a 'Mark IV' wording. This is an Australian industry standard level of cover. The base wording can be tailored to the individual risk profile of the policy holder by adding endorsements to expand the coverage. This can be a complex task requiring careful consideration to ensure that the policy best matches the risks facing the business.
1.9 The coverage under an ISR policy consists of two sections. The first is 'material loss or damage' and the second is 'business interruption' (also referred to as consequential loss).
1.10 Material loss or damage covers all property for physical loss, destruction or damage not otherwise excluded by the policy.
1.11 Business interruption covers the loss resulting from the interruption or interference to the business as a consequence of material damage. Business interruption cover is only triggered after a material damage loss. The cover includes loss of profits or income for the period following the damage until the business resumes pre-loss production. Examples of other business interruption cover include increased costs of working and loss of rent.
Choosing the right policy
1.12 ISR insurance is ordinarily taken out by businesses with larger commercial and industrial concerns and exposures. Biz Pack policies are typically offered to small to medium commercial enterprises. While there is no hard and fast rule about which cover suits a business, this is generally determined by reference to the value of the assets owned by the business.
1.13 The threshold that separates ISR and Bus Pack cover is
usually $5 million in assets and turnover. The appropriate cover
for businesses that have above $5 million in assets and turnover is
an ISR policy.
Scope of cover
1.14 ISR insurance offers greater coverage flexibility by allowing the holder to customise the policy to suit their business' risk exposure by, for example, deleting existing exclusions in the Mark IV wording through an endorsement.
1.15 Unlike an ISR Policy, when selecting a Biz Pack policy, it is important to remember that there is no standard cover between insurers and each 'Pack' is different and employs different terminology. Some policies provide broad cover with a wide range of extensions and reasonable sub-limits. Others may only provide basic 'no frills' cover.
1.16 In those circumstances, it is important for businesses buying Biz Pack cover to remember two things. First, they should not simply focus on cost when comparing policies, without regard to the scope of cover. Second, there are dangers associated with relying on the standard offering without any effort to tailor the cover to the specific requirements of the business through the use of endorsements. If this is not properly addressed, it will inevitably lead to underinsurance (which we examine in our next article in this series) and inappropriate insurance cover.
1.17 ISR insurance essentially has a broader scope of cover and removes the need to take out separate policies/coverages such as in a Biz Pack Policy. For example, cover under an ISR policy includes damage to glass, a common insurance requirement in leases. An ISR policy removes the need to take out that separate cover, because glass falls within the definition of property under the Mark IV wording.
1.18 Those businesses demonstrating continual growth (together with an evolving risk profile) that currently insure their property under a Biz Pack policy should consider an ISR policy, for the reasons outlined in this article.
How we can support you
McCullough Robertson and our insurance advisory service, Allegiant IRS, can assist you with a review and assessment of your current insurance policy to ensure you have appropriate cover. We can also guide you through the process of redesign, placement and renewal of insurance cover for your business to ensure that it best fits your current or anticipated risk profile.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.