Half of SMEs fail after insurable loss

Almost 85% of SMEs think they are fully insured but around half fail after an insurable loss to their business, according to insurance experts.

Speaking at the Australian Insurance Summit yesterday, Suncorp chief of commercial insurance Anthony Day said while large corporations are generally covered for business interruption and major perils, small firms are less proactive.

“The lower take-up rate among small businesses is an issue. Around 60% of SMEs aren’t covered for business interruption to protect profits if they suffered a major loss,” Day said.

Daniel Fogarty of insurance firm Zurich says despite the figures, small businesses have learnt their lesson from the Queensland floods, saying he has seen an increase in the number of SMEs increasing their cover.

“[Zurich] is focused on SMEs and the brokers who serve them… Our Queensland sales are doing very well and SMEs are definitely interested in flood cover,” Fogarty says.

Fogarty did, however, stress the importance of getting the right advice for coverage, particularly in relation to flood cover because of the lack of data needed to price flood risk.

According to Small Business Victoria, small businesses should consult an insurance broker.

“If you’re starting out, working out what to insure against before you’ve even made a profit is hard,” a spokesperson says.

“An insurance broker is a professional insurance expert who will represent your interests… This contrasts with an insurance company or insurance agent who may act in their own interests or those of the insurance company.”

“Choose a broker who understands the day-to-day risks of your business. If you do, you’ll get a policy that covers the risks particular to your business.”

According to Insurance Compared, every small business needs to determine what kind of insurance they require, “whether you’re running a small company with a handful of employees or just starting a business out of your home.”

Small Business Victoria outlines some key insurance policies for small businesses:

• Professional indemnity. If you supply advice, you can be sued for financial loss due to errors or emissions. Examples of professionals who require this cover include architects, designers, education workers, real estate agents and consultants.
• Personal accident, illness or disability. This refers to your inability to work and loss of income, and is particularly relevant to sole traders.
• Insurance over premises. If you own or lease a building for your business, this insurance will help you rebuild or replace contents in the event of a disaster such as theft, fire or storm damage.
• Workman’s compensation/employment insurance. If you plan to have employees working at your business, you are legally required to have this insurance. It protects employees and/or contractors from injury.
• Public liability insurance. This insurance protects your business if a customer is harmed by using your product or is injured on your premises.
• Business interruption. This provides cashflow based on expenses and expected net profit if business is interrupted by property damage or other uninsured perils.
• Electronic equipment or breakdown. Covers the cost of replacing computers and data re-entry after an insured event.

“Try to buy your insurance from a company normally offering business insurance instead of one selling mainly domestic insurance,” Small Business Victoria says.

“Combined types of insurance are available; some examples of these are commercial, shop, retail, industrial, office, trades and business vehicle insurance.”