Pinpointing your risks is essential
Founder of Biemond Nurseries, Marion Biemond, was relieved she'd been through a comprehensive review of her business insurance when a fierce storm hit the nursery in the Yarra Valley.
"We had just completed building a greenhouse. We then had a very violent storm, almost tornado-like. We had high winds and a corridor of wind came through and blew over our new greenhouse," Biemond said.
Not only did damage from the storm mean parts of the nursery needed to be rebuilt, but the business lost a third of its capacity because it had to cancel stock that would have been stored in the greenhouse.
Biemond said her insurance broker, OAMPS, had taken her through a detailed process of the different types of insurance available to her business.
"[As] as a small business owner you need someone to explain the different components, and help us work with our accountant to get the right business interruption figures. Once you have this formula it's actually very easy," she said.
Victorian sales leader for insurance broker Willis Australia, Leigh Frost, says there are three key types of insurance a business should consider: protection against operational, strategic and financial risk.
Frost says strategic risk covers loss resulting from inappropriate or flawed strategy, for example when entering new or untested markets. Operational loss occurs when there's a breakdown of controls or procedures that results in damage, and financial loss is when a business has impaired its ability to provide adequate return on funds.
In the current economic climate, it is financial risk that is usually of greatest concern to small and medium enterprises, Frost says.
"Because times are tough, the financial risk is the one that keeps them awake at night: they're worried about how they're going to pay a mortgage or loan. The operational or strategic seem a little more removed because they are potentially things the business can control," Frost says.
There are additional risks that might come under any three of the categories above, such as personnel risk, or "key man insurance" - where heavy reliance on one person might eventuate because of an issue with strategic or operational failure. And environmental insurance, which can cover a business for damage it causes to the environment because of catastrophe or in the event it suffers because of changes to the environment.
The first thing to do when identifying the key risks your business faces is for a broker or insurer to understand the nature of the business and its objectives, Frost says, which includes getting to know the risk tolerance of a business.
"Risk is anything that would stop a business from achieving its objectives." A broker will then discuss ways a business can manage its risk, looking at ways to change business processes and balance the cost of insurance with risk tolerance.
Frost says only 25 to 30 per cent of business risks are usually insurable, once all the costs are considered. He says insurance is not the only way to manage risk and brokers work with clients to consider other ways to reduce risk.
"Just because it is insurable doesn't mean we'll always progress down that path," he said.
The third phase of working with clients is matching business objectives and advice to appropriate insurance products, balancing all the objectives, likelihood of risks, risk profile and costs, Frost says.
Biemond says having thorough insurance covering different contingencies such as physical damage and the costs of business interruption is the smart approach.
"You always think, 'This would never happen to me,' and when it does you're really glad that you've got the right cover," Biemond says.
"People must be crazy not to have proper insurance. You always hope you don't need it, but if you do I hope you have good insurance."
Questions when arranging cover
What do you see as the key risks in your business?
Which risks do you currently insure?
How confident are you that your organisation's key insurable risks have been identified?
What is the most important part of your existing risk program?
How do you quantify risk in your business?
Are you aware of any gaps in your program?
What is your risk retention appetite?
Is your insurance aligned to your organisation's risk profile?
Source: willis.com
Frequently Asked Questions about this Article…
Business insurance protects a company’s assets, cashflow and ability to continue trading after unexpected events. The article uses Marion Biemond’s nursery — which lost a greenhouse and about a third of its capacity in a violent storm — to show how the right cover and a broker-led review can make the difference between recovery and serious financial strain.
Insurance advice in the article highlights three core risk categories: operational risk (breakdowns in processes or controls that cause damage), strategic risk (losses from flawed or inappropriate business strategy) and financial risk (impairment of the business’s ability to deliver returns or meet loans). Knowing which category matters most to your business helps shape the right cover.
Business interruption insurance covers lost income and ongoing costs when a physical loss forces suspension or reduction of normal operations. The article notes that Biemond worked with a broker to calculate proper business interruption figures after her greenhouse was destroyed — showing how this cover can replace income lost while rebuilding or replacing stock.
A broker’s role, as described by Willis Australia’s Leigh Frost and Biemond’s experience with OAMPS, is to understand your business objectives and risk tolerance, identify the key risks, suggest ways to manage or reduce those risks, and match suitable insurance products while balancing cost and exposure.
No — Frost estimates only about 25–30% of business risks are typically insured once costs are considered. Brokers work with clients to decide which risks to transfer to insurers and which to manage through changed processes, retention or other controls.
Key man insurance protects a business if it heavily relies on one person and that person becomes unable to work, while environmental insurance covers liability or losses related to environmental damage or changes. Both can sit under the operational, strategic or financial risk umbrellas depending on the business scenario.
The article explains the matching process: identify the business objectives and likely risks, assess likelihood and consequence, measure risk tolerance and costs, then select insurance products that balance these factors. Brokers help ensure the insurance aligns with the business’s overall risk profile and goals.
Useful, article-sourced questions include: What are the key risks in my business? Which risks are currently insured? How confident am I that key insurable risks have been identified? What’s the most important part of my current risk program? How do I quantify risk, are there program gaps, what is my risk retention appetite, and is insurance aligned to my organisation’s risk profile?
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