The earthquakes in Christchurch have shaken the core foundations of some businesses, raising a number of issues, which were taken for granted earlier.
One of the main concerns has been the inability to commence trading for companies, who are either in the Red Zone or have had all the records destroyed.
The loss of data has shown the importance of proper backup procedures and offsite storage of the backups.
Even in the case of buildings that were not destroyed, the inability to access them has led to a complete breakdown in functioning of businesses.
The inability to access information has meant that businesses have not been able to send out statements to debtors, which in effect means that they may not be paid. Not being paid creates cash flow issues with a cascading effect on the whole business community.
The importance of understanding the clauses in an Insurance Policy cannot be over-emphasised. It is important to be on the same page, while interpreting the terms, conditions and coverage of the insurance company.
For example, what does your business interruption cover? Does it include loss of Income, revenue or profits? What is the definition of these terms? What is the basis for calculation?
It has been quite clear with the Christchurch Earthquake that in some cases, where the buildings were not destroyed but only access to the Red Zone blocked, the insurance companies are reluctant to settle claims, saying that the policy does not cover restriction of access to the premises.
Destruction of records or lack of access to the office could hamper the preparation of a claim. All insurance claims relating to loss of profit or revenue would require information for the current and previous years.’
Claims with incomplete information may give insurers a reason to wriggle out of settlement.
It is possible to resolve most of the issues through simple and inexpensive procedures and prevent the heartburn.
The following are some of them:
Backups: External hard drives have become cheap and easily available.
Most drives come with software, which can be scheduled to back up on a regular basis. However, it is important to store the backup offsite so that it may be easily accessible in times of need.
Using multiple drives, online backup options would also be helpful in the event of an emergency or disaster.
Online accounting packages: In today’s environment, online accounting could be a good option, eliminating the need to perform backups.
The main advantage is that it is instantly available from any PC, connected to the Internet. I understand that later in the year, MYOB (Mind Your Own Business) will offer a product, which runs the programme of your PC, automatically storing the data online.
Review of Insurance Policy: Get an appraisal done on the clauses and wordings of your insurance policy, have them reviewed by an independent person or lawyer, and ensure that you understand the items covered.
Be in contact with you insurer and seek clarifications from time to time.
A little effort and understanding of the issues now can make the stressful times more bearable. The faster one can return to normalcy, the easier it would be to move forward after a catastrophic event.
Anil Lamba is employed in the Business Advisory Service with BDO Auckland at their North Shore office. He is also a MYOB Certified Partner. Telephone (09) 4870036 or 021- 413421 Email: anil.lamba@bdo.co.nz
