Whether from bushfires, floods or pandemics, unforeseen risks can prove awfully expensive if your business isn’t fully insured.

The calamitous bushfire that hit Wyndham, New South Wales, in February 2020 was a game-changer for Kay Saarinen, whose permaculture farm and skincare company, Saarinen Organics, was only partially insured.

The fire caused roughly $150,000 worth of damage to her property, destroying crops, irrigation, farm machinery and fencing. Despite some damage, the Saarinens’ straw bale home was lucky to be the only house left standing on their side of the road. The community lost eight neighbouring houses.

Kay’s story is one of many you’ll hear about the 2019-2020 bushfires that cost Australian businesses an estimated $2 billion in total insurance losses, with 20,000 claims lodged. 

When the unexpected happens

The Saarinens were only partially insured when the bushfires hit, leaving some key buildings, infrastructure, crops and machinery at risk. They also didn’t have product or business interruption insurance. Like too many small business owners, they just assumed they were covered for both business interruption and damage to buildings and equipment when, sadly, they weren’t.

Kay’s experience, where her business was underinsured and therefore responsible for a large percentage of the total loss or expense is, unfortunately, something that happens more often than not. And the impacts can be substantial. It’s also a good reminder of why business owners need to have their business properly assessed to avoid it.

“At the end of the day, we’ve had to replace a lot of it at our own expense,” Kay says. So far, they’ve replaced about 60% of what was lost, which Kay explains “has probably blown out to more than what the insurance would have cost us”.

Reacting to unprecedented circumstances

Like many communities and businesses, the Saarinens could never have predicted the calamitous extent of business damage a natural disaster like the bushfires caused.

“My husband’s a volunteer firefighter, so we’ve usually got a fire plan – to stay and fight,” Kay explains.

“In normal conditions, there are resources, helicopters, brigades from other areas. But these were unprecedented fire conditions. Resources were that stretched, we were told: ‘if you stay, you will die’.”

Prior to the fire that hit on 1 February, the Saarinens had been evacuated seven times. They returned home after each evacuation, working hard to try to save everything that wasn’t insured. 

They managed to get everything out of Kay’s timber laboratory building, where she produces her skincare products – including about $60,000 worth of ingredients, $50,000 worth of packaging and $30,000 worth of creams ready for the Christmas rush – but had to wait to hear whether it was left standing.

It was a nerve-wracking wait. Even though the lab on the outside was insured, its interior, including expensive stainless steel benches, was not.

“If we’d lost the lab, we’d have lost $150,000. We’ve got a solar power board, so we walked away with the sprinklers going.

"The fire came right up to it, but it hasn’t even got a scratch on it,” Kay remarks, relieved. 

Tackling underinsurance

Underinsurance is a big concern for SMEs, according to the latest My Business data. For example, 62% of Australian businesses do not feel prepared for a natural disaster. Part of this could be due to the administration involved in their business insurance policies, which 33% are struggling to keep pace with.

The Saarinens had public liability insurance to cover their farm tours, cosmetics and laboratory insurance, builder’s insurance for her husband Gregg’s carpentry business, market insurance for the markets and the expos Kay attends, Workcover for their staff, and home and contents insurance. But it wasn’t enough.

“We weren’t considered a bushfire-prone area. We live in a wet belt; a fern gully. We usually have gumboots on even in summer,” Kay laughs.

“But these were firestorms. It can jump over farmland and hit a house – the grass can still be green on the ground, but the house is burnt down. It’s such a new ballgame now. Nobody is safe. I think everywhere is fire-prone.”

The insurance the Saarinens did have has helped them at least start to get their lives back on track. It’s paid to replace a tank and irrigation system connected to the house, smoke-damaged mattresses, curtains and rugs, and the property’s boundary fences. Saarinen Organics has been well-supported by its customers, too, so Kay’s business has continued to provide a regular income. Still, Kay estimates the fire has set her family and business back financially by at least five years.

With the pandemic still lingering and another bushfire season approaching, now’s the time to prepare your business to survive the future. Revising your insurance portfolio could be as easy as getting accurate data on risks or having your assets properly valued.

Disclaimer: The guidance provided is general in nature. The guidance is factual information only and is not intended to be financial product advice, legal advice or tax advice and should not be relied upon as such. The guidance has been prepared without taking into account your personal objectives, financial situation or specific needs. Before acting on any guidance you should consider the appropriateness of the guidance having regard to your objectives, financial situation and needs. Before making any decisions, it is important for you to consider these matters and to seek appropriate financial, legal, tax, accounting and other professional advice.