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Take Cover – Small Business Insurance

Is your business among the one in six SMEs that have no business insurance coverage? Paul Giles considers the devastating consequences they could face, and the peace of mind they could have if the worse does happen and they are covered by business insurance.


Many SMEs do not consider worst-case scenarios, dismissing them by thinking ‘that would never happen to my business, I have considered all the risks.’ You should realise that for a small weekly insurance payment, depending on your individual circumstances, your business could be protected from those scenarios.

Small and medium businesses contribute almost 47 percent to Australia’s total business operating income and employ about 63 percent of the nation’s workers. However, many small businesses don’t have adequate insurance. According to the Insurance Council’s Underinsurance and Non-insurance Report, 2002: “The 2001 ABS Small Business Survey estimated that just under 200,000 uninsured small businesses were operating in Australia. And approximately 17 percent of all registered small businesses employing up to 20 people had no insurance. This equates to one in six businesses with no insurance protection.”

Underinsurance can have a devastating effect on businesses. Unfortunately, most businesses don’t discover this until faced with an event they need to make a claim for. Underinsurance could leave you unable to resume normal trading or may lead to the closure of your business. Ensuring you are adequately insured will give you peace of mind that you are protected against the financial burdens of an accident or incident.

It’s important to obtain a correct assessment of the value of your business and assets when obtaining an insurance policy. When you purchase new assets, like equipment, or make changes or renovations to the business, you must inform your insurance representative to ensure these additions are added to your policy.

The Insurance Council would like to see the underinsurance problem change. Insurance should be considered as one of the key components in a business risk mitigation program. Business interruption insurance, for example, is one component of a business insurance package that helps to financially support a business from loss of income following insured damage, and to meet the cost of quickly getting the business back on its feet.

Business interruption insurance is a key product offered by the general insurance industry, but it’s not universally understood. Like all forms of insurance, business interruption insurance varies from insurer to insurer. Most business interruption policies provide cover for consequential loss of income and/or profits or revenue resulting from the interruption of, or interference with, your business caused by damage covered under insurable events. It’s important to understand exactly what your business would be covered for during an event. So you need to read the product disclosure statement and wording of your policy, and contact your insurance policy representative who will answer any inquiries you have. The key is to purchase a product that meets requirements and supports the business in mitigating its risks.

So, what’s classed as an interruption? Once again, policies will vary in terms of different definitions, but most will cover for loss of gross revenue and increased expenses during the affected period, including costs such as loan repayments, supplier/employee costs, and management of key customer accounts. If a particular type of ‘interruption’ is not covered under a standard policy, it’s possible to take cover for additional interruptions for an additional premium. Examples include loss of rent, computer and IT set-up costs, and additional increases in costs of working (payroll and advertising expenses etc).

The cost of business insurance will vary from one provider to the next because insurance works on the principle of spreading risk over a large number of policyholders. Which means pooling the premiums of many to pay the claims of relatively few, therefore keeping premiums at a reasonable level. Another way to look at the pricing of insurance is that the overall sum insured is chosen by the policyholder and is priced according to their individual requirements. However, as general insurance is highly competitive it’s advisable to shop around. And if you’re unhappy with your present policy or conditions talk to an insurance broker.

Brokers are intermediaries whose job it is to find the best policy for a particular individual or organisation. If the business is unique or specialises in a particular product it might be worthwhile contacting a broker who specialises in a particular business industry. Brokers can be contacted directly or through the National Insurance Brokers Association (NIBA).

Business interruption insurance represents one component of a series of cover options that need to be considered when your company is purchasing business insurance.

Other business cover options include:

Property/Material Damage

This cover ensures the business premises and assets are covered against loss and damage, similar to the protection of a home building and contents policy but this one offers cover specifically for the business.

Public and Products Liability

This pays for legal defence costs, legal costs of third parties, and court awards brought against you if your business or products have been found to cause personal injury to someone or damage to their property (the person bringing legal action against you is considered the third party).

Professional Indemnity

Like public and products liability, this insurance pays for all legal costs and court awards if advice provided by you in your business capacity is found to have caused injury or loss to a third party, such as financial advice provided by an accountant or advice provided by an architect.

Workers Compensation

If your business hires employees, you are required by law to ensure there is Workers Compensation and superannuation in place for each employee.

These types of cover when combined with business interruption insurance form an integral part of your business and play an important role in your risk mitigation process.  

* Paul Giles is general manager, communications, for the Insurance Council of Australia.


Key Links

Insurance Council of Australia—www.ica.com.au

National Insurance Brokers Association (NIBA)—www.niba.com.au

Insurance Advisors Association of Australia (IAAA)—www.iaaa.com.au

Insurance Ombudsman Service—www.insuranceombudsman.com.au


Tips to help save on insurance

• Risk management: by identifying and managing potential risk, a business may be rewarded with lower insurance premiums.

• Buy an insurance package of policies: packages that provide cover for all your business needs are generally less expensive than buying separate policies. Shop around, particularly with brokers or insurers that specialise in small business insurance.

• Don’t buy insurance on price alone: a cheaper premium may cost in the long term if the policy does not provide adequate cover when you need to make a claim.

• Correctly estimate the assets insured: this avoids the risk of over- or under-insurance.

• Find the best premium payment method for your business: paying by the month may allow a better cash flow for the business than an annual premium.

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