09 Aug The underinsurance conundrum facing Australia
Too many Australian small business owners open themselves up to risk by not having adequate insurance cover.
Underinsurance is a chronic issue in Australia. But it’s an even more alarming problem for small business owners, as it can threaten the survival of a business.
What is underinsurance?
Underinsurance is when someone doesn’t have adequate insurance to cover the cost of loss or damage to the things they own or against their legal liabilities, or is not insured at all for those belongings or liabilities. Being underinsured in a small business can have huge ramifications, particularly if you’re running a business without some of the essential covers, such as business insurance, cyber insurance, income protection and management liability.
There’s a lot riding on Australian small businesses. A Federal Government snapshot shows that as of December 2015, more than 4.7 million Australians are employed by SMEs. Despite their huge footprint on the Australian business landscape, adequate insurance remains a weakness of SMEs.
The Insurance Council of Australia’s 2015 report on non-insurance in the SME sector showed a non-insurance rate of 12.8 per cent. While this is a significant improvement on results from their 2007 report (which identified a non-insurance rate of 25.6 per cent), there’s still a long way to go.
Sydney financial services firm Rice Warner’s Underinsurance in Australia 2015 report showed the median level of life cover meets only 61 per cent of basic needs.
Rice Warner defines basic needs as the minimum required to pay all non-mortgage debt and sustain the current living standard until age 65, or until children reach 21.
Paul Nielsen, director and chair of the Council of Small Business Australia (COSBOA) says many SMEs are in denial about the business risks they face.
“Business owners tend to think it won’t happen to them and because of this, some SMEs view insurance as dead money. They need to understand the value of a good insurance broker. It’s like going to the doctor – you explain your situation and they tell you what you need to do to protect the health of your business,” Nielsen says.
Trying to cut corners and save money is risky when it comes to insurance cover, according to John Clark, of Australia’s largest general insurance broking network, Steadfast.
Erring too much on the side of cost-cutting can have devastating long term costs for a small business. However, when appropriate covers are in place, a solid insurance policy can underpin and assist the growth of a business, Clark says.
“The problem is that SMEs are often trying to save money, and look for ways to save money on their insurance. With the rise in online insurance options and price comparison websites, whilst you can now more easily identify the cheapest policy, this however it is not always a smart move because the lower the premium, the narrower the cover. This could mean that your policy isn’t there for you when you need it most.
“When it comes to insurance, it’s not just the costs involved. Rather, it’s ensuring that you have adequate cover to protect your business in the event of a claim.”
“Many businesses underestimate their risk, or simply don’t keep their insurance broker up to date regarding important changes to their business. When it comes to insurance, it’s not just the costs involved. Rather, it’s ensuring that you have adequate cover to protect your business in the event of a claim,” he says.
The type of cover you need will depend on your business size and type. Your Steadfast insurance brokercan assess your unique business requirements and help you find the most suitable policies.
In Australia, cyber insurance is one of the more commonly overlooked policies. And yet more than 1.1 million ransomware related threats were detected across email, URL and files in Australian between January and May 2016, according to Trend Micro.
How to avoid underinsurance
The first step to avoid underinsurance is to use a specialist insurance broker who knows your industry and can highlight common policy features that can improve your cover and lower your risk.
It’s hard to put a price on the value that an insurance broker can bring to your small business. However, your insurance broker needs to be given the complete picture, including changes to your product or service offering, growth and new threats to your small business.
By taking the time to review your business thoroughly during your renewal process, your insurance broker can help ensure your protection is adequate. Speak to a Steadfast insurance broker to find out what insurance cover best suits your business, today.