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In a tale as old as time itself, us Wellingtonians often talk about “the Big One" aka. the big earthquake due in the next 50 years.
On a business insurance level, we discuss potential damage and disruption it’ll cause, as well as how we’re going to manage. Not always a fun conversation to have, but a necessary one here, in the windy, wobbly city.
Typically, the classic business interruption insurance has been the talk of the town for us when it comes to mitigating risk.
To refresh your memory, business interruption insurance will fall into place after a material damage claim, i.e. damage to your building/contents etc, that causes a disruption to the business. Damage could include a power surge for example, leading to the business being closed for a couple of days and needing to dispose of stock. Think of a café, or restaurant, for example.
Or damage could be from a major event like an earthquake (aka. "The Big One"), which keeps business doors closed for some time, and the pays you a figure for a set amount of time. As a business owner, this pay-out could be to pay your lease, pay some key staff, and in general keep your head above water while you figure out the next steps.
But what happens if your building doesn’t suffer any damage, yet your business is still affected by an earthquake?
Think of the likes of a Mortgage Broker, or a Realtor..
These were some of the occupations that were massively impacted after the recent Kaikoura earthquakes in Wellington, when the housing market flatlined after the quakes. Some livelihoods were lost, and this was despite the fact that the structure of the building and the business assets remained perfectly intact.
There is a gaping hole in insurance cover in some industries. An earthquake could cause (and has caused) a huge fallout relating to certain occupations, but according to the above where there has been no material damage, a business interruption claim might not pay-out.. *pause for dramatic effect*... until now.
Parametric insurance is based on a ‘triggered’ event rather, than a claim for actual harm or loss. This can be either employed as an additional cover or a standalone alternative to the classic business interruption insurance.
With this option, a claim is paid out when a certain criterion is hit, for example when a big earthquake moves the ground a certain amount. In earthquake-related parametric insurance terms, this will be measured by GeoNet measuring seismic shaking (ground movement) of 30cm/sec cm’s, or approx. M6.0 or larger.
There doesn’t need to be damage to your building. As long as the seismic movement criteria has been met, the parametric insurance will pay an immediate lump sum with minimal wait time.
This is also available for residential policies – a lump-sum deposited into your account, which can be used for whatever purpose you deem fit.
Payment is triggered by trusted and independent public data from GeoNet.
Full payment with seismic shaking of 30cm/sec, or approx. M6.0 or larger.
No excess or paperwork.
Funds can be used for any additional expenses.
No damage necessary.
Average price of $14 per month for $10K of cover, varies by Postcode.
Sound like something you’d like to know more about? Give me a ring.
Joshua.
Before you make any decisions, discuss your situation with an adviser from Velocity Financial, and seek advice from professionals, such as a lawyer and accountant, to find the best solution for your unique situation.
Disclaimer: No investment decision should be taken based on the information in this blog alone. Please see disclosure statements on our website.