While the recent spate of earthquakes has seen us running to put in place emergency disaster kits in our homes and workplaces, Einstein has taught us that there are lessons to be learned and opportunities to be gained from the difficulties experienced by Christchurch businesses.
Instead of wallowing in self pity at the thought of our insurance premiums rising by as much as 40%, we should see this as a wake-up call to reassess our own business preparedness for a range of events, not just natural disasters. We have compiled a business check-list based on issues raised by our clients in the wake of the Christchurch earthquake.
Insurance.
Suddenly, the fine print becomes much more important. How well do you understand the risks for which you are insured, and, more importantly, those for which you are not? Do you have a competent broker who understands your business and will search the market for the best product? Remember, the best product is rarely the cheapest.
Recent events have highlighted for small businesses their exposure to their business being interrupted. It may not be your premises which are damaged but that of your key supplier. Business interruption insurance is usually covering a loss which is consequential upon some other insured event and obviously the scope of your policy can be critical as to whether you have cover.
In the South , we are fortunate that we have the option of reviewing our cover and upgrading it where necessary. Our colleagues in Canterbury are not so fortunate. Proactive brokers are already looking to improve cover for their clients, for example by extending indemnity periods out to 24 or 36 months.
Leases.
With leased premises, you need to know what provisions are in place in the event that the property is untenantable or even just moderately damaged. What if you occupy a high-rise and your staff refuse to work there after an earthquake?
Your lease is unlikely to release you in that circumstance. Changes to the insurance market are going to impact on lease terms as insurance companies elect to claw back their losses by changing the basis for excess calculations.
Some insurance companies are quoting excesses of 5% of site value so for a $20 million office block, the excess would be $1 million. Inevitably, building owners will seek to recoup some of this through lease arrangements.
Systems.
Businesses in affected areas in Christchurch who had offsite back-ups were much more nimble in responding to the crisis than those who did not.
Undoubtedly, this experience will cause businesses to rethink some of their reservations about operating in the cloud. At the very least, it is important to have key contracts including your employment contracts, leases, supply contracts available offsite, preferably digitally, to enable easy access in an emergency.
Enabling staff to have remote access before disaster strikes is also important, and easily achieved. You also need to ensure you regularly back-up your mobile phone contacts, so you can contact key people if separated from your phone.
Employment contracts.
Many questions have arisen in relation to employers obligations following the recent Christchurch quake. For example, closure of schools meant many staff who could have gone to work were unable to do so due to lack of child care.
Some businesses had employees ready willing and able to work but there was no work for them to do. Many employers have continued to pay their staff but obviously there is a limit to largesse (both government and private) and it is important to have rights clearly defined in the agreement.
Good relationships with your staff will usually result in willingness to find a practical solution, such as employees taking annual leave.
Supply contracts.
Where your business has key suppliers, or is a key supplier, how well do you understand the risk provisions in your terms of trade? If the risk is yours are you insured for it?
It is also a good time to ensure that you have security over supplies that you make to customers in the event of their failure to pay. Remember, they may have insurance which covers their obligations to you so you need to make sure your contracts are watertight.
Banking arrangements.
Where your business is highly geared, any interruption can put considerable pressure on your ability to honour your banking commitments. Maintaining a good relationship with your bank is important but in the end it is likely that the best position you will achieve is to defer repayments rather than avert them all together.
More importantly, you will have to be proactive to obtain any banking relief. Where you have large exposure you need to seek advice or risk products which may minimise your exposure in unforeseen circumstances.
Undoubtedly the costs of doing business will increase for all of us, but there will also be new opportunities. Spend the time and money on getting prepared so you can make the most of those opportunities.
• Sally Peart is a partner with Mitchell Mackersy Lawyers.
