This year’s insolvency statistics indicate steady increases across many business sectors. December data from the Australian Securities and Investments Commission (ASIC) shows that every sector except the arts has experienced more insolvencies in 2023 compared to 2022.
According to the regulator, the construction, accommodation/food services and retail sectors led the way with the highest relative number of firms entering external administration.
Construction was particularly hard hit with more than 1,200 firms going insolvent this year, up from about 900 last year and more than 450 in 2021.
“One of the indicators that general brokers use as a sign of financial pressures is insolvency rates,” said Shane Brady (pictured above). “We know that insolvency rates across the country are taking quite a turn.”
The director of Stone Lane Broking & Risk Advisory said the increases are an indicator that the overall economic landscape in this country is “tough.”
“Commercial business is suffering the pressures of increased costs of production, increased wages and recruitment challenges,” said Brady. ““All of these things have a real downward pressure on business.”
One of Stone Lane’s focus areas is manufacturing.
“We deal quite heavily in the manufacturing space,” said Brady.
In ASIC’s data, the number of insolvencies in this sector is behind the top three but still grim reading. Two-hundred and nineteen (219) manufacturing firms went insolvent in 2023.
“Over the last three years that industry has suffered quite significantly,” he said.
The regulator’s data reflects this suffering. In 2022, much the same number of firms went insolvent as this year. In 2021, the figure was lower but still a relatively significant 70.
“If you look at the interruption of global supply chains, where a lot of big manufacturers source goods from overseas,” said Brady, “for obvious reasons [the COVID-19 pandemic], throughout 2020, 2021, and even 2022, there were lots of supply chain issues that caused increased costs with businesses needing goods urgently and paying a far higher premium for that luxury of getting those goods.”
He said manufacturing businesses are still recovering.
“We’ve got pretty much a pandemic hangover,” said Brady. “I think while overall the manufacturing sector is in a strong position there have certainly been financial pressures and that impacts the bottom line, which in turn impacts their ability to source the right insurance cover.”
In this challenging economic situation, Brady said providing clients with good advice is particularly important. He said his firm has always focused on advice rather than transactional insurance.
“I don’t think we’ve changed the type of thing that we’re doing for clients but we do have additional services that we’ve been adding to our suite,” said Brady. “This can help consolidate their insurance and risk services into the one spot and that probably doesn’t help from a financial point of view but it certainly helps streamline their overall risk management, ethos and attitude.”
He said, over the longer term, this can have cost savings across the business.
“They can [then] better identify the risks that they can transfer to the insurer, or identify a risk that can be managed in house, which will, over time, save the business money,” said Brady.
Insurance Business asked Brady to give an example of his firm’s risk advisory approach.
“When we have a client or a prospective client, we’ll come in and not just look at deconstructing and reconstructing an insurance program that best suits, we also help identify areas that are better managed through risk mitigation techniques,” he said.
Brady said this might involve sourcing an external consultant who can improve the risk management at the firm in a particular part of the business.
“This in turn then alleviates the pressures of an insurance premium that you would ordinarily use to manage that risk,” he said.
A recent article on the Norton Rose Fulbright website described ASIC’s insolvency data as “a confronting reality.”
“It is important for companies to be aware of the early warning signs, and have the right financial and legal insights,” said the authors. “This is the most effective way to build a risk management strategy which will account for the viability and capacity of all key stakeholders, including customers, partners and suppliers.”
How do you see Australia’s insolvency rates? How are you helping your customers through these tough economic times? Please tell us below
