Business insurance

The rise of micro-businesses in Australia is a testament to the freedom and opportunities that running a small enterprise provides. But as more people are choosing to go out and provide specialised trade services, more are being faced with insurance issues that they haven’t encountered before. If the aim is to build a healthy and robust small business community, it’s crucial that more tradies understand insurance well enough to make informed decisions about their risk management plan.

In 2016, the ABS reported that a whopping 88.3% of businesses in Australia had 0 to 4 employees, which puts them in the sole trader or micro-business category, whilst only 9.2% had 5 to 19 employees, which is a more traditional small business size (1). The figure is slightly distorted by the number of ABNs allocated to SMSF ownership companies, but the reality is clear: the staff of the archetypical Australian company can all be driven to work in a small family car.

So if we’re going small, it means more business owners have less resources and limited experience with business insurance. If the trend continues, this issue could become a very real form of exposure within the business community.

With this in mind, let’s have a look at some of the major insurance types that tradies should consider. We’ll also offer some hints on what to consider before you buy, and the kind of information you’ll want to have handy.

Public Liability Insurance

Public Liability (PL) insurance is the number one priority for most small businesses because it covers a huge legal liability – the duty of care we have to keep others and their property safe from injury or damage. Whether a claim is valid or not, PL protects you against the legal and compensation costs involved.

Due to the nature of the claims involved, costs for PL cases can stretch well into the millions of dollars, so the risk for a small business can be incredibly high. Claims can stem from something as seemingly innocuous as tripping on a loose cord, accidentally bumping an expensive piece of equipment, or spilling coffee on a client’s laptop.

Highlighting the importance of PL insurance is the fact that many government and professional organisations require minimum coverage before they’ll licence a practitioner or grant membership admittance.

Professional Indemnity Insurance

Professional Indemnity (PI) insurance is crucial if you provide advice or services, and protects against the legal costs of being accused of any breach of duty. PI protects professionals against a huge legal liability by covering the risk of negligence, and will pay for court costs and compensation claims – regardless of whether a claim is valid or not.

Common business types that require PI include accountants, bookkeepers, masseurs, beauty therapists, consultants, life coaches, personal trainers and psychologists. Claims can arise from something as simple as an accountant missing a tax expense, to something more complex such as an engineering or architectural error leading to faulty building construction.

Business Insurance (BI) can protect your contents and work premises against loss, damage or theft, as well as the financial pain of business interruption. But this is just the tip of the iceberg, as BI is really an umbrella term for a host of cover options, including things like machinery breakdown, glass, theft, portable equipment, employee dishonesty and money.

With BI, you can literally pick and choose the options you want to include, depending on the nature of your business and specific items that you wish to insure. It might be your tools, your dishwasher or the glass in your store. It may even be that you want to protect yourself against the expense involved in a tax audit, or business interruption so that an insured event doesn’t stop the flow of cash to your company.

The point of BI is that it should be tailored to your specific business needs. Be aware of the exclusions in your policy, however. Finding out you’re not covered for a claim after the event is a painful way to learn.

But wait, there’s more…

PI, PL, and BI are the primary insurance types that micro-businesses may need, but there are others that warrant consideration, including Management Liability, Personal Accident and Cyber Liability insurance. Personal Accident insurance, in particular, is widely needed as it protects your most valuable real asset – your ability to earn an income. Also, as more business is conducted online, the threat of cyber attacks is turning more business owners to Cyber Liability insurance.

So, where to begin?

The process of purchasing business insurance should be prefaced by a little bit of forethought and a small amount of research.

The forethought is related to risk. Ask yourself what kind of insurable risks your business faces and what the severity of those risks might be. The level of impact is key, because severity is much more important than probability. You want to protect yourself against the events that could do the most damage, not the ones that you could easily handle. You’ll also want to have a think about how you personally feel about risk. Do you have a high tolerance for it, or does the thought of risk keep you awake at night?

The research part is mostly about collecting the basic information you’ll need to have handy when you take action, including:

Location
ABN
Industry
Business size
Number of employees
Turnover

In addition, you should have a fair idea of the amount of cover required. With Public Liability insurance, for example, $10 million is a standard amount, but $5 million or $20 million are sometimes required.

Wrap up

Australia isn’t really a nation of small businesses, it’s a nation of micro-businesses. This is a wonderful sign for our economy, but the risk is that vast tranches of the business community are trading without first catering to their insurance needs. The key for sole traders and micro business owners is to find out what those needs are, and shop around for a provider that can meet them.

If you’re a small or micro business on Oneflare, insurance is important for you to have to perform jobs safely and without risk. It’s about being protected from any possible situation that could leave you out of pocket. If you haven’t already, upload a copy of any licenses, certificates and proof of insurance that you may have onto your Oneflare profile.

*Michael Gottlieb is the founder and managing director of BizCover, a leading Australian small business insurance site. He has founded a number of insurance businesses since 2001, and is featured on Insurance Business Magazine’s 2017 Hot List.

BizCover™ Pty Ltd (ABN 68 127 707 975; AR 338440) is a corporate authorised representative of Mega Capital Pty Ltd (ABN 37 098 080 418; AFSL 238549). This is general advice only.

Aside from having the right cover, one of the top considerations with insurance is how to maximise your policy.

Which cover you decide to buy is just the starting point.

To protect your business against all risks and manage your insurance effectively, it’s essential to understand the policy and increase your chances of a successful claim. Business costs can quickly rack up. But by minimising risks and improving precautions, you’re able to save money and gain more benefits from your cover.

Here’s how to optimise your business insurance for the most significant results.

1. Choose the right cover

Without the right cover, your business is at serious risk.

The best insurance for your business depends on the industry, number of staff, where you work from and what risks are associated with the work you do.

Choose the right cover by:

Conducting a risk assessment
Considering common business threats that apply to your industry
Determining what types of insurance coverage you need – for example; professional indemnity insurance (service-based, if you offer advice for a living), public liability insurance (protects against injury/damage caused by your products/services), business insurance (package option to cover multiple policies such as building, contents, theft and general property) and cyber-liability insurance (protects against online risks)
Checking if there are any compulsory policies your business needs

Tip: One of the biggest mistakes business owners make is underinsuring. In fact, according to the Insurance Council of Australia, only 63% of businesses have enough cover. Make sure you weigh up your business assets, include the most valuable in your cover and reevaluate if you buy new equipment or extra stock.

2. Review your business activities

Activities grow as your business does, so it’s essential to make sure you’re protected if things change.

If you have an insurance broker let them know when business activities differ. They’ll be able to review coverage options on your behalf to find the most beneficial one for you.

Check your policy to see if existing coverages need changing. Or, you may need to buy more protection. Significant changes to report include if you move your business to a new location, change the amount of staff you employ or introduce operational variations like expand product/services offerings.

Group of three people sit around a desk inspecting a document — A group of people inspect a document / Source: Beger & Co Lawyers

3. Regularly evaluate your protection and risks

The best way to lower your insurance costs is through a yearly evaluation.

Checking insurance statements is usually on the bottom of the to-do list. But avoid the set-and-forget tactic to review every 6-12 months, so you know what you’re working with.

Tip: Review your deductibles as well. Set an amount you can easily come up with if you need to make a claim. Higher deductibles may be beneficial for lower-risk businesses, as they help discourage you from filing smaller claims. Some insurance companies offer discounts for policyholders who don’t file claims.

4. Avoid bad practices

Bad practices increase the costs of your business insurance.

Consider the actions you take (and don’t take) if you want to avoid out-of-pocket costs and higher insurance premiums. Failing to provide training to staff and not maintaining a safe workplace are just some of the culprits that can increase your expenses.

Contact local commercial law experts

Make sure you:

Keep adequate records for risk management programs
Take reasonable care to ensure your staff are safe at work and on the job
Provide staff with regular training to prevent accidents
Review geographic risks such as natural phenomena
Comply with employment laws
Choose a reputable insurer, licensed in your location and provides a good service
Implement more robust risk management to reduce insurance costs
Understand the policy details, such as contract terms, what it does and doesn’t cover and how you get paid for each claim

Some business owners are better off working with an insurance broker who helps by providing risk management advice and increasing your chances of a successful claim. This prevents high premiums, under or over-insuring and uncertain claims as a result of paperwork not being filled out correctly.

Getting your cover and policy right is the difference between being adequately insured or leaving your business exposed to incidents.