Uninsured small firms facing failure

Many small businesses in Canterbury are unlikely to have business interruption cover and some could fail as a result.

Pressing obligations to pay staff and shell out the excess on their insurance policies is placing great pressure on hundreds of small business.

Prime Minister John Key yesterday announced a $100m package of emergency payments for the workers of business with 20 or fewer staff.

The wait for assessors to examine the damage is also slowing businesses' efforts to return to trading.

Local insurance broker Lindsay Kerr, manager of insurance brokers I C Frith and Associates, said while insurance cover for buildings, plant, machinery and stock was common, if a small business was looking for savings, then business interruption cover was the one likely to have been cut.

"It is a bit on the expensive side," Kerr said.

Small business did take this cover, "but I suggest there will a lot out there who haven't got it". The reasons were price and business owners thinking "it won't happen to me".

The plight of businesses has brought representatives from the big trading banks to Christchurch this week- Andrew Thorburn, chief executive of BNZ and Ian Blair, general manager of business banking at Westpac.

Blair said he had been speaking with small business customers yesterday and they feared they would fail without some help. Three to five days not trading put pressure on small businesses which still had wages and other obligations.

"It's a sad fact that some will tip over," Blair said.

The companies that had "done it tough" through the back end of the recession would be most at risk of failing because of the earthquake.

Westpac was offering emergency overdrafts, "no questions asked" for businesses, and loan holidays. It had set aside $1 billion for the rebuilding of Christchurch.

Other banks are offering similar packages.

Insurance Council chief executive Chris Ryan said with regard to business interruption insurance: "it might be surprising the number of people who don't have it".

The longer the cover, the dearer it is. Kerr said the cost of the cover was dependent on the risk of the business, the length of the cover and amount of income.

Common periods were six months to one year. It was one of those insurances that would not be fully settled until companies were back to normal trading. Progress payments could be made to help businesses meet immediate payment demands.

"If they have it, there is every chance they will survive," Kerr said.

Some businesses would take their payout for damaged and lost stock and equipment "and close the doors".

While the many business owners making inquiries with I C Frith were calm, Kerr said the "next wave" would be worried businesses saying no one had been to see them.

Manpower to do the assessment of damages would be short.

"I've been in this business for 44 years and I've never seen anything like this," Kerr said.

Gary Young, chief executive of the Insurance Brokers Association said it was probably the small, less complex businesses that would not have taken cover for loss of profits-business interruption. That type of business would consider it could set up elsewhere easily.

"The irony is the loss of profits of business interruption claim payments very often are much bigger than the claims payments on assets and on buildings and plant."

A lot of business owners underestimated the time it took to get a business up and running again and back to the level of trade pre-quake.

"For an earthquake of this size it may be one or two years before you are trading back to normal."

Young said business interruption insurance could save a business in an event like an earthquake: "It's a bit like stopping breathing. You don't last very long."

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