Insurance best practice

Insurance | Print Article

[Winter 2011]

‘If I had my way, I would write the word ‘insure’ upon the door of every cottage and upon the blotting book of every public man, because I am convinced, for sacrifices so small, families and estates can be protected against catastrophes which would otherwise smash them up forever. It is the duty to arrest the ghastly waste, not merely of human happiness, but national health and strength, which follows when, through the death of the breadwinner, the frail boat in which the family are embarked, founders and the women and children and the estates are left to struggle in the dark waters of a friendless world.’

-Sir Winston Churchill

One matter the Canterbury earthquake has brought into sharp focus is the necessity for businesses to have adequate insurance. In the aftermath of a major disaster, the sufficiency of a business’s policies will be the prime factor in whether it survives, or is forced to wind up. It is accordingly critical for businesses to be diligent during the process of obtaining and maintaining insurance.

There are two very relevant types of insurance for farmers to have. The first is material damage insurance, which most farmers will have. This covers physical damage caused to your assets – like your vehicles, livestock, plant, cowshed and other buildings.

The second is business interruption insurance, which is sometimes also called loss of profit insurance. This type of insurance, commonly offered as an optional extra to a material damage policy, covers the income lost by a business in the aftermath of a business interruption, like a natural disaster. In addition to covering losses stemming from damage to your property, a good policy will also cover interruptions flowing from other properties – such as damage to a power station leaving your farm without electricity.

Cover of this nature is especially important for dairy farmers, who are particularly sensitive to business interruptions given their reliance on continuing daily production. Rebuilding a cowshed will take months at the least. Where a widespread disaster puts enormous demand on building services, it may be up to a year before the farm resumes making profits.

We urge all our farming clients to take the opportunity to review their insurance arrangements and read through their policies carefully. Work out what events you are covered for, for how much, and how long the cover will last. Understand exactly what your obligations to the insurance company will be, not only in terms of notification, but of allowing the insurer to inspect the property before attempting to clear up any damage. If any part of the policy is not clear to you, discuss it with your broker. If you’re still not happy, seek advice from your solicitor.

Lastly, develop good filing habits and keep up-to-date records of your farming operation. If your records are on computer, consider backing them up onto a flash drive. Make sure this continues throughout the periods where disaster strikes and in the aftermath. Take lots of photographs of any damage and make sure you retain any information that could help in your claim. The more information you can provide to your insurer, the quicker your claim will be processed.

Adequate insurance will give you the peace of mind of knowing you are protected from nature’s cruelty. The rub is to ensure that your insurance is adequate. How sure are you that your insurance will hold up if disaster strikes? How sure are you that the amount of your cover will give you good enough protection? For some, these may be uncomfortable questions. They need to be answered, however, if there is to be real peace of mind.