Cost of Business Insurance in New Zealand
Cost of business insurance in New Zealand can vary due to different business activities and industries your business operates.
It is my intention that by the end of this article you will be able to understand why one business pays a few thousand dollars more while the other hardly even notices the cost of business insurance.
Judgement on the base of cost of business insurance
Many business owners judge their insurance policies on the base of cost of business insurance. In my work I get inquiries about cost of business insurance on daily basis – majority of business owners want to pay less. Some of them routinely shop around looking for a cheap quote, missing the most important ingredient – suitability of the policy to the current operation.
Many savvy business owners diligently check the whole portfolio of policies they have for their business. Making sure that the cost of business insurance is proportional to the business income.
My view on the matter is simple: let’s worry about the business and how to make more money rather than how to save a few dollars on insurance premiums.
Before we are going to drill into nitty-gritty of cost of business insurance let’s look at what types of business insurance available in New Zealand.
Types of Business Insurance
“Public Liability Insurance” – provides cover to your business from financial liabilities arising from third parties claims. Examples are: Personal injury or damage to their property. Let me provide you with the following scenario:
Your Concrete business employs a contractor and provides him with a work van. The contractor accidently smashes Telecom’ box and the deck of the house which was located nearby, destroying a few pillars which were holding it. The contractor is temporarily disable due to the sustained injuries, the van is written off and there is also $220,000 bill from Telecom for their damaged property (box) and the property owner (deck). The van would be compensated to your business on market value by the vehicle insurance. ACC would seek some compensation from your business due to disability of your contractor. Telecom would be reimbursed by the Public Liability component of your vehicle insurance. The property owner damages to his house deck would be compensated by your Public Liability insurance.
The above scenario describes a typical owner’s situation and shows types of insurance policies the business should have in order to avoid described problems.
- Commercial vehicle insurance.
- Employers Liability insurance.
- Public Liability Insurance.
Below is a real life example for cost of business insurance. This is a quote for a concrete company, which employs 7 employees and with annual turnover of $300,000.
Important to understand that the example below for cost of business insurance is based on a bundled approach, meaning that if it was only Public Liability insurance it would cost more. Cost of business insurance in this example is $1,200 plus GST
Cost of business insurance (example)
One more example: cost of business insurance for an arborist with only Public Liability insurance. The quote is a real life example and is based on $70,000 business turnover. Cost of business insurance in this example is only $700 per annum. As you have noticed if we compare cost of business insurance even the turnover of the arborist’s policy is a lot less the policy is in fact much dear. It only provides $1,000,000 of Public Liability limit to compare with $2,000,000 for concrete contractor.
The above examples show that both business activities are seen by the insurance company as high risk and the premiums represent that: an arborist with $70,000 turnover almost as twice as dangerous to compare to a concrete contractor with seven employees and $300,000 turnover.
How your Business Insurance work – full scale commercial claim
Now let’s make the scenario on a full scale commercial claim. Same accident as above but instead of a house let’s use a petrol station.
Your “Road servicing” business employs a contractor and provides him with a small tanker (track). The tanker contains chemical solution (weed killer). The contractor due to an accident and subsequently uncontrolled truck drives through the petrol station destroying a couple of pumps (dispensers) as well as smashes the pillars which hold the roof, finishing the ride right inside of the shop. The shop and the goods are covered by spilled weed killer. The petrol station employee escapes the incoming truck uninjured, however suffers shock and mental injury.
Cost of business insurance (example):
The petrol station “stock and building” cover and cost of business insurance would look as follows:
Please note, the quote shows that both policies provide the business owner with replacement value. Meaning that if the service station is destroyed by an earthquake or a fire – the building would be rebuilt and the stock replaced.
In our example the stock in the shop which was damaged by the spillage of chemicals would be replaced. The excess on the policy would be covered by the truck insurance.
Important to understand that geographical location of your business plays a very important part in cost of business insurance. While Public Liability insurance for a service station located in Auckland would cost more due to potentially high risk (high density of buildings and nearby businesses) same business (service station) would pay smaller premiums for similar size of Public liability insurance located on rural site.
Petrol Station in my opinion must have Business Interruption Insurance which subsequently increases the cost of business insurance. The reason I think that any service station must have business interruption insurance in New Zealand starts with earthquake activity, followed by high risk due to fire and accidents.
The above example shows Business Interruption Insurance for a service station calculated on 12 months’ period of indemnity. Meaning that the business would receive $740,000 proportionally monthly allocated as compensation due to current claim.
In our example, due to the damage to the shop and the petrol station, the business would not be able to operate. The business would be covered by business interruption insurance and if it would take a month for the business to repair the shop and re-stock it the business owner would receive almost $72,000 from the Business Interruption Insurance plus all the money to fix the shop and the roof of the service station.
The employee would receive his compensation for mental injury from Employers liability which in our example is for $500,000 and annual cost of the cover only $120
Public Liability Insurance can also cover products liability. If for instance you manufacture sausages in your leased commercial property your public liability insurance would cost you only $33.34 monthly or $400 annually. Keep in mind the quote takes into account $750,000 turnover of the business.
I hope you would agree with me that if we compare Public liability insurance for the service station we discussed above and the arborist (quote above) and the sausage manufacturer we can easily notice that all business insurance costs are different due to activity and size of turnover.
For your convenience I provide you with one more example:
The business smokes mussels and has $75,000 of turnover. Premiums for Public Liability only $400 annually (same as the sausage maker). Please note, same $ amount as for sausage making and for mussels smoking in premiums but the mussels smoking business has as much as twice amount of cover ($2,000,000). Where the sausage maker has only $1,000,000 of Public Liability.
However, the turnover and locations make huge difference: in real terms the smoking mussels Public liability insurance is as twice as cheaper to compare to the sausage manufacturer.
Please allow me to provide you with an additional example of cost of business insurance using the same sausage manufacturer. This example is for material damage insurance. The policy would provide cover to the business for contents of the factory:
Machinery, packaging and labels.
If the business insures $200,000 contents the premiums are going to be $1,202.25 – same as above the premiums are based on replaceable value. Meaning if the factory is destroyed by fire the owner of the business would be able to re-start his business literally in a matter of few days.
If on the other hand the machines are 6 years old and the policy is for indemnity value, the premiums would be much less but it would also mean that most likely our business owner would not be happy with just a few thousand dollars he would receive.
Important point here is when you consider cost of business insurance use what is right for your business not what is simply less.
As it was promised at the beginning of the article by now you know a lot more about cost of business insurance to compare to a typical business owner who prefers to ignore important knowledge.
If you are shopping for business insurance cost of business insurance important as well as industry, size and location and all the other details we have discussed above.
If you are shopping for a quote for you business, please do not hesitate – call my office or complete the form below and I would be happy to provide you with a quote making sure that all aspect of your business are taken into consideration.
Light commercial / rural
Industrial / heavy commercial
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By the end of this article you will be able to see your public liability insurance from a completely new and most likely different prospective. The examples below are for informational purposes only. Public Liability Insurance does the size really matter? I think it does and let me proof it to you. Amount of Public Liability – Read more →