Business interruption (BI) is considered the greatest risk facing New Zealand companies, according to a survey by broker Marsh.

Disruption after a major incident such as an earthquake, fire, flood or terrorism was rated the highest concern, even though only 20% of respondents are based in Canterbury.

Other risks in the top five include destruction of assets by fire, flood or another natural disaster; non-compliance with legal and contractual obligations; lost productivity and reduced efficiency due to staff absenteeism, stress, low morale and turnover; and failure of systems or website security, loss of data and data corruption.

One-quarter of respondents have suffered a high-impact financial loss in the past three years. Of those, 39% say their insurance policy did not cover the loss and one-third say a 12-month indemnity period in their BI policy was not long enough for the business to recover.

Marsh NZ Executive Director Steve Walsh told insuranceNEWS.com.au many BI clients expected an incident at a single location, not a catastrophe covering a wide area, such as the Canterbury earthquakes.

“What a lot of people found is their policies didn’t respond as they thought they would,” he said. “For example, retailers would buy insurance to cover them for six months but they didn’t get back into the zone until after 12 months.”

Many New Zealand companies are now trying to buy more BI cover at a time when insurers are wary of additional risks, he says.

The report says organisations are reviewing risks more regularly, but Mr Walsh says this does not mean they are better at planning for losses.

“Clients are certainly looking more closely at the type of cover but I don’t think the level of preparedness has had much focus,” he said. “They’ve focused on insurance and not on the business itself.”

The Marsh report also says legislative changes and high-profile court cases such as the Bridgecorp decision have made businesses more concerned about compliance and the accountability of senior executives.

Mr Walsh says uncertainty around these risks leads some directors to take a conservative approach, but to others it makes no difference.

“They think, ‘The Bridgecorp guys were bad guys, that’s not us, so it’s business as usual’,” he said.

A key risk for SMEs is losing staff to competitors. In the survey, 58% of respondents did not have plans in place to deal with this.

Half the survey respondents say their boards’ involvement in insurance and risk management has increased in the past year.

Reasons cited include greater perceived risks in the business environment, concerns over insurance coverage, past major losses, earthquakes and the Bridgecorp decision.

“Risk and insurance has risen up the scale of importance within companies and boards to a significant level that it didn’t occupy prior to the earthquakes and Bridgecorp,” Mr Walsh said.

The survey was conducted in August and is based on responses from 143 senior executives across New Zealand.