Startups call for better cover

SMEs need adequate protection. Photo / Greg Bowker

Insurance companies are tailoring their products to better suit the needs of small Kiwi businesses.

The small to medium enterprise sector is notoriously under-insured and some in the insurance industry say the Christchurch earthquake has highlighted the need for firms to think more seriously about appropriate cover.

Brent Wright, managing director of business insurance brokers Maurice Trapp Group, said there weren't a lot of products developed for startup companies. Their lack of cashflow in the first couple of years made them hard to underwrite, he said.

Another problem was the tendency of those starting their own business to suffer mental health problems, often as a result of business failure. "That's a big risk insurance companies have had to grapple with."

In the past, SMEs used fire and general insurance and life products, but they often came with restrictions such as short payment periods or low benefit amounts. "The biggest market that hasn't probably been insured correctly is small business."

AIA has launched a product aimed specifically at startups. The New to Business cover was designed for businesses that were less than four years old, CEO Wayne Besant said.

The AIA policy took the firm's cash flow into account but in the event of a disability it offered SMEs a guaranteed payout of between $2000 to $8000 a month for two years.

"There's no offset against other insurances or ACC, it's a guaranteed amount," he said.

AIA was also offering a new business continuation product which was similar, but which covered more established firms for greater amounts.

The policies had been popular. Besant said the company had more than 1000 inquiries since they launched in April.

New Zealand had half the average OECD take-up of insurance generally and the industry needed to be doing more to educate and support SMEs, he said.

General manager of marketing and product for Sovereign, David Drillien, said in the past two years the insurer had developed two products for SMEs - a disability income product for startups and business earnings protection. The startup cover came with some limitations but after two years the business could upgrade to a regular product.

"[SMEs] is probably an area where insurers over the past few years have put a little bit more focus and there's some innovations coming out," Drillien said.

Harry Ferreira, the BNZ's national manager small business, said his gut feeling was that most SMEs were under-insured.

"I'd be so bold as to say that less than 30 per cent of businesses are adequately insured," he said.

The bank had products catering for businesses at all stages, including key man, business interruption, liability, asset and cash flow insurance. In the wake of the Christchurch earthquake it had made a point of talking to customers about getting covered.

"Business interruption insurance is where we saw that where people were protected well they got through this relatively unscathed. Where people weren't protected they're really struggling, if not making a decision about the future of their business."

As a bare minimum, firms should carry key man and business interruption insurance, plus liability cover if they're in the service industry, he said.

A reader replies:

In connection with your story last week about the funding gap that NZTE has opened up, I would like to take issue with BNZ chief economist Tony Alexander's comments at the end of this article, that "the recession ended over a year ago and we are finding many SMEs have their balance sheets and cash flows in good order. But confidence to invest and hire is still fragile though likely to improve next year as rising exports to Australia and China help lift the economy's growth rate above 3 per cent."

For many SMEs the recession did not end a year ago and most small businesses that I mentor certainly are still struggling to get their balance sheets and cash flows in good order.

I always thought that Tony was more in touch with this country's economic state, but clearly he is not.

Murray Victor, Christchurch


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