Debunking the $2k insurance myth

In the first series of the Small Business Success Professional Indemnity series GIO presents instalment two: The $2K Syndrome: Helping SMEs break out of their rut.

Consider for a moment how much businesses spend every year. There are wages, marketing overheads, hardware and equipment costs, rent, utility bills, production – the list turns into a never-ending cycle. Not only do business owners face inevitable expenditure, but they can also often make purchasing mistakes, investing in business decisions which could affect the long term welfare of their company.

In this video, GIO spokesperson Chris Stallard comments “taking time in choosing the right insurance for your business and re-assessing it every year as your business changes, is like securing a lifeline for your enterprise. And it is something that could translate into a saving for many business owners.” 

‘$2000 will cover it’

Call it an insurance misconception, but many business owners have a fixed idea of what they believe is an appropriate amount to pay for insurance. If they paid $2000 last year, they think $2000 will do nicely for this year. But when every other aspect of their business could have changed, why would the same amount still be valid to protect them into the future?

Is $2000 too much to spend on insurance? Does it cover today’s business needs?

Chris Stallard, Senior Leader in the SME Portfolio for GIO Insurance, recently spoke with financial expert Peter Switzer (Switzer TV) about the $2000 syndrome and the rut that many small businesses are stuck in when it comes to their real insurance needs. Many small businesses are in danger of not purchasing the tailored insurance protection that is required.

A lot of SMEs take out insurance policies to cover events of fire, theft, property damage, loss of income and liability. But re-assessing the needs of the business yearly could uncover areas where policies could be more tailored. Stallard provides a list of simple measures regarding appropriate insurance selection and review, which could actually translate to a business saving. 

Business insurance audit

  • Look at the changes in your business from the yearly prior: staff turnover, assets, budget etc
  • Review your business. Are you are paying for insurance that you may not need? Conducting a realistic audit could uncover areas of expenditure that are not necessary, as well as ensuring that your business is fully protected.
  • Are there new items that are not covered under your current policy?
  • Is your business covered for any events that could cause a loss of revenue?

Appropriate Cover

According to Chris Stallard, only 50 percent of SME customers purchase Business Interruption Insurance – a frightening statistic given that their costs will continue even if their revenues ceases.

But didn’t the $2000 I spent on insurance last year cover it?

Not necessarily. And this is where business owners need to check their policies to ensure they provide the covers they need. Professional indemnity insurance is another policy which is often overlooked and is vital for those in a position of giving professional advice to their clients.

An audit of current insurance policies measured against the business’ specific needs could also mean a saving for business owners. Stallard reminds customers that the cost of insuring a property can be reduced if the owner invests in fire prevention and security, or opts to take a higher excess.

What if you had an extra $2000 to spend?

Think of those initial start-up costs which are essential for any small business and how an insurance saving could be put back into your pocket:

  • Company Logo $500 – $1000
  • 1 Terabyte Server $600
  • Adobe Photoshop $1050
  • MYOB Right Standard $500
  • Office for MAC $400
  • Wireless Router $150
  • Apple iMAC $1500
  • Printed Stationery $500 – $800

Fine-tuning expenditure could mean the difference between operating a half insured business and spending more with perhaps less start items versus operating as a fully insured business with tailored spending.

Stallard goes on to mention: “There are a number of resources for business owners to tap into relating to small business protection, long before the customer receives a quote from an insurance company. These are usually available as SME fact sheets available through government websites such as Business.gov.au or MoneySmart.”

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