Setting up a business in New Zealand can be a gruelling, yet rewarding and exciting endeavour. Organising insurance for your business probably isn’t going to be as exciting, but it’s definitely one of the most important things you’ll do and could save you and your business from financial disaster.
Most people have a rough understanding of what ‘Public Liability’ and ‘Professional Indemnity’ means. Let’s turn that rough idea into a firm understanding.
PUBLIC LIABILITY (or ‘PL’) insurance protects your business against the financial risk of being found liable for causing injury, damage, loss or death to a third party (that is not covered by the Accident Compensation Commission).
PL cases can be complicated, which is why legal costs can be astronomical. As claims often relate to injuries sustained, settlements can also extend into the millions of dollars. A good policy will cover both of these risks and, in some cases, include Product Liability for claims against any failures of your products or products that you’ve provided.
Any business that sells products or has interactions with customers, suppliers or contractors is at risk. Given the magnitude of the costs and claims involved, most small to medium sized businesses would not have the cash available to cover these costs, and would be in danger of going out of business if a claim was made and they were not insured.
Imagine the consequences if a supplier came in for a chat and a coffee, accidentally tripped on an exposed floorboard and fell, breaking a kneecap. Or if some equipment you’d previously installed incorrectly caused damage to a contractor’s machinery. Perhaps an item you sold had a random defect that injured a client or made them sick. The scenarios that a good Public Liability policy protects your business from are as varied as they are numerous.
PROFESSIONAL INDEMNITY (or PI) insurance protects professionals against legal costs and claims for damages arising from any act, omission, or breach of duty in the delivery of a service.
Professional Indemnity is important insurance for those providing a professional service or advice to their clients. If someone believes that you’ve made a mistake in your professional capacity, misstated a fact or overlooked a vital piece of information, they may instigate legal action to cover the losses they experience as a result.
Whether a claim is valid or not, Professional Indemnity insurance will protect you against court costs and compensation claims.
It’s important to note that the risk of having a claim levelled against you is not directly rated to your skill or level of professionalism. Claims are made against all types of businesses for a variety of reasons, and the consequences can be dire to not only your finances, but to the reputation you’ve earned in the community.
Take, for example, a contractor that fails to finish a job by the completed time, or an architect who provides faulty building designs. Regardless of its merit, the damage a PI claim could do to your business in terms of cost, reputation and stress is immeasurable. Protection is essential.
Whilst PI and PL are the heavyweights of the business insurance world, it is also important to look at other risks that may apply. Consider Cyber Liability insurance to protect you from data breaches and hacking, Statutory Liability insurance in case you inadvertently breach NZ Acts of Parliament, and Employers Liability insurance to cover against claims where an employee becomes sick or is injured at work.
Remember, you don’t have to insure everything – but you should take care of the things your business can’t afford to replace or wouldn’t be able to pay for. Severity trumps probability; you may not deal with PI and PL claims all the time, but when you do the cost will generally be severe.
The golden rule is that ‘Not All Insurance Is Created Equal’. Compare the policies on offer and scan the Product Disclosure Statements to get familiar with the inclusions and exclusions.
Public Liability and Professional Indemnity insurance are the heavyweights of insurance in NZ for a reason. They pack a punch. And when it comes to a legal scrap, you want them in your corner.
BizCover™ Pty Ltd (ABN 68 127 707 975; AR 338440) is a corporate authorised representative of Mega Capital Pty Ltd (ABN 37 098 080 418; AFSL 238549). This is general advice only.