A small business owner turned insurance boss has shared her insights on how small businesses can adequately insure themselves in an evolving landscape.
Drawing from her many years of experience as a small business owner in the hospitality sector, Amanda Whiting, EGM
CGU small to medium enterprise division, said running a business means handling various roles you previously possibly held no knowledge of – including taking up the right insurance.
Whiting said there are many considerations to take into account when covering a small business, including public liability, and the often missed management liability or professional indemnity.
Another cover, which she said was often overlooked, but is crucial for continuing business operations, is business interruption.
“Many people don’t think about how much income they can lose while they wait for assets to be repaired or replaced after an incident, or how they would pay their ongoing staff costs or retain their customer base if their business couldn’t operate,” she explained.
Whiting said business owners should also consider taking up cyber insurance in order to protect their customer’s data from “unforeseen cyber risks” to their business.
IAG, parent company of CGU, identified four emerging trends across the SME landscape that small business owners should guard against.
Australia's largest insurer revealed that nearly 40% of Australian small businesses haven't updated their insurance for buildings, stock, or contents in the past year, which puts them at risk of financial losses when making a claim.
IAG said that the cost of replacing and repairing business assets fluctuates each year, and in some areas, replacing a building has increased by more than double the consumer price index (CPI) in the past year due to building code changes and increased labour costs.
Less than a quarter of small businesses were also found to not have financial protection against business interruption, despite this being one of the most expensive types of claims, averaging to more than $20,000 per claim.
IAG said business interruption costs increased above CPI largely due to factors such as specialised machinery being more easily damaged yet difficult to repair.
With consumer buying behaviour changing quickly, the insurer warned that a few days of business closure can lose a small business its customer base to a competitor.
IAG also found that of the 97% of small businesses with public and products liability cover, only 45% have the basic minimum cover.
By only taking the minimum liability cover, IAG said small business owners are exposing themselves to a possible multimillion dollar financial shortfall should they be hit with a large liability claim.
In terms of cyber cover, IAG noted that despite nearly 50% of SMEs recognising its importance and the rise in cyber threats, only 10% have cover.
Speaking about the insurance needs of small businesses, Whiting commented: “Just as there’s no such thing as a ‘one size fits all’ small business, there’s no such thing as a ‘one size fits all’ small business insurance policy. That’s why it’s important for small business owners to ensure they’re insurance needs are tailored to their business and their unique situation."
She added: "It’s also not a set and forget strategy. You need to update your cover every year to ensure you have the right match for your business needs."
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