As a small business owner, you might be overwhelmed working out what your risks are, how to deal with them, and which need insurance coverage.
And that’s before you even drill down into the fine print of insurance policies to check how they can protect against unexpected financial losses and liabilities.
Even the Australian Small Business and Family Enterprise Ombudsman has weighed into the issue. Earlier this year, it found that many small businesses were hitting the wall due to not being able to find appropriate and affordable insurance. Expect to hear more about this issue from the Insurance Council of Australia which is reviewing the general insurance code of practice for insurers. It aims to ensure fair, open, and honest dealings with small businesses and consumers.
But for now, business risks remain so must be managed. This article offers ten tips to simplify the process, so you can make informed decisions about your insurance needs.
1. Know the Types of Business Insurance
Understanding the different types of business insurance is the first step in ensuring adequate coverage. Common policies include:
- General Liability Insurance: Covers legal costs and damages related to third-party injuries or property damage arising from your business operations
- SME Business Pack: Combines general liability and commercial property insurance, protecting your business against a number of risks such as fire, storm & theft
- Workers’ compensation insurance, for businesses with employees, and
- Professional liability insurance (also known as errors and omissions cover): For businesses that offer professional services and want protection against lawsuits regarding work-related negligence, oversights, and mistakes.
- Management Liability: Covers the risks that arise from running your business, including OH&S, unfair dismissal, sexual harassment, statutory breach of duty, and defamation.
These types of insurance provide a foundation for most small businesses, but the specific needs will vary based on your business type and assets.
2. Legal Requirements for Business Insurance
Legal requirements for business insurance vary by industry and region. For instance, general liability insurance is often required for businesses in public spaces or providing client services, while healthcare providers typically need professional indemnity coverage.
In Australia, professional indemnity insurance is essential for businesses offering advice or specialist services, protecting against claims of negligence and covering associated legal costs. Although not mandatory for all, certain occupations, such as accountants, architects, and real estate agents, must have this coverage as required by legislation or professional bodies. Many small businesses also opt for professional indemnity insurance voluntarily to meet client expectations, secure contracts, and gain peace of mind.
To obtain or renew licenses or contracts, businesses may need to show proof of professional indemnity insurance through a certificate of currency, confirming current coverage details.
Here’s the official Federal Government business website explaining compulsory and optional insurance types.
3. Understand Your Industry’s Risks
Different industries face unique risks that influence the type of insurance needed.
For instance, accountants need professional liability insurance to cover claims of negligence or errors in their work. Restaurants, on the other hand, may require product liability insurance to protect against claims related to foodborne illnesses or accidents.
Tailoring your insurance coverage to your industry’s specific risks ensures comprehensive protection.
4. Prioritise Coverage Over Cost
While it may be tempting to opt for the cheapest insurance policy, aim for adequate coverage.
An insurance industry survey should just 43% of small businesses believe they are fully covered against insurable business risks. It found that about a third admitted they lacked a plan if something untoward happened.
Being underinsured means your business could face significant financial losses if a claim exceeds your policy limits. Investing in comprehensive coverage assures you peace of mind and safeguards the future of your business.
5. Factors Affecting Insurance Premiums
Insurance premiums are influenced by various factors including:
- Business size
- The value of your operations and assets
- Business location and exposure to natural events susch as bushfires, cyclones or floods
- Your appetite for risk
- Coverage level requested
- Discounts (such as for paperless billing, packaging policies together, etc), and
- Claims history.
Businesses with significant risk exposures or those with a history of claims may face higher premiums. Implementing risk management practices, such as improving workplace safety and maintaining a clean claims record, can help lower your insurance costs.
6. Consider Your Deductibles
Choosing higher deductibles can lower your insurance premiums. Deductibles are what you pay as the policy holder before your insurance kicks in. But it’s important to balance this with the potential out-of-pocket costs in the event of a claim.
Assess your financial capacity to handle higher deductibles and find a balance that suits your budget without compromising coverage.
7. Overestimate Your Insurance Needs
Adding in a contingency for unforeseen factors can protect against unanticipated liabilities.
Consider commercial umbrella liability insurance or excess liability insurance, which offers extra coverage beyond the limits of your standard policies. It can help ensure your business is well-protected against significant claims.
8. Choose Reputable Insurance Providers
Selecting an insurer that is APRA regulated (including Lloyd’s) is critical. Where your risk is of a type that requires the placement with an Unauthorised Foreign Insurer (UFI) we, as your broker or adviser will ensure that the UFI is financial-stable and well-rated.
That’s where we, as your broker or adviser, come in. We live and breathe insurance so are across the policies and what they cover for your industry as well as others.
Not only do we help customise a range of policy options for your unique business, but also help you review and update your policies over time, plus play a role in managing any claims you need to make.
9. Read Insurance Policies Thoroughly
Understanding the terms, conditions, and exclusions of your insurance policies is vital. This takes time and expertise because these documents abound in technical terms that may not mean what the average person thinks they do.
As your broker or adviser, we go through the fine print to help you clarify any complex details. This ensures you’re in the know about what is covered and any potential gaps in coverage.
10. Seek Professional Help
Having a broker or adviser like us on side can help you compare quotes and policies.
Insurance is a vital investment in your business’s stability and growth can protect against unforeseen financial setbacks and ensure long-term success. Let us help you through the insurance selection process.