Business insurance is bought once, renewed annually without review, and examined properly for the first time at claim. That sequence produces most of the disappointment in the category.
The main covers and what triggers them
Material damage covers physical loss or damage to your buildings, plant, stock and contents. The critical question is whether it is written on a replacement or indemnity basis. Indemnity pays depreciated value, which will not replace the asset.
Business interruption covers loss of income following an insured physical damage event. This is the cover most often inadequate, for two reasons: the indemnity period is set too short, and the sum insured is calculated on the wrong basis. An indemnity period of twelve months sounds generous until you consider how long it takes to consent, rebuild and re-establish trade after a serious fire. Eighteen to twenty-four months is frequently more realistic.
The important limitation: business interruption generally requires physical damage to your own property. A road closure, a supplier failure, or a pandemic will not trigger it unless specific extensions are in place.
Public liability covers your legal liability for injury to third parties or damage to their property. Standard for any business with premises or that works on other people’s sites.
Statutory liability covers defence costs and, where insurable, fines for unintentional breaches of certain statutes. Note that fines under the Health and Safety at Work Act cannot be insured — that is a deliberate policy choice. Reparation orders and defence costs may be covered, which is still worth having.
Professional indemnity covers liability arising from professional advice or services. Essential for consultants, engineers, architects, accountants and designers. It operates on a claims-made basis, meaning the policy in force when the claim is notified responds — not the one in force when the work was done. This is why run-off cover after you stop practising matters.
Directors and officers covers directors personally for claims arising from their conduct as directors. Relevant to any company with a board, including small ones, given the personal duties directors carry.
Cyber covers response costs, business interruption from a cyber event, and liability following a data breach. Increasingly relevant given the notifiable breach regime under the Privacy Act 2020.
Motor, marine cargo, employer’s liability and key person cover specific exposures that a general policy will not.
Where the gaps usually are
- Underinsurance on rebuild cost. Construction costs have risen substantially, and a sum insured set five years ago is likely well short. Average clauses can reduce a partial claim proportionately where you are underinsured, so the shortfall bites even on small losses.
- Business interruption sum insured calculated on profit rather than on the correct insurable gross profit basis, which usually understates it.
- Seismic and natural hazard exclusions or sub-limits, particularly for buildings with low seismic ratings.
- Contractual liability assumed under a customer’s terms that exceeds what your policy covers. Signing an indemnity your insurer will not back is a common and serious exposure.
- Goods in transit and in third-party storage, which many policies exclude or limit.
- Lapsed professional indemnity for historic work.
The duty of disclosure
You must disclose material information to the insurer. Failure to do so can allow the insurer to decline a claim or avoid the policy entirely.
Practical implications: tell your broker about changes during the year, not just at renewal. New activities, new premises, changes in ownership, prior claims, and any regulatory action or prosecution are all likely to be material. A business that changed what it does and did not say so may find out at the worst moment.
Working with a broker
A broker is worth using for anything beyond the simplest cover, and the value is in scope rather than price. The questions worth putting to them annually:
- What is our single largest uninsured or underinsured exposure?
- Are the sums insured current against today’s replacement costs?
- Is the business interruption indemnity period realistic for our actual rebuild timeline?
- What in our customer contracts are we indemnifying that this policy does not cover?
- What has changed in our operations this year that you should know about?
What insurance does not solve
Insurance transfers financial consequence. It does not restore a customer relationship, replace lost staff, or discharge a regulatory obligation. It is one control among several, and businesses that treat a policy as a substitute for risk management find the excess, the exclusions and the loss of business considerably more painful than expected.
The Financial Markets Authority publishes material on financial services and the Insurance Council of New Zealand publishes consumer and business guidance. For a business of any size, an annual review with a broker who knows your operation is the practical answer.
General information only, not financial advice.
