It’s an often-overlooked part of running a small business, but insurance is too big of an issue to ignore.
As any small business owner will tell you, running your own business is a time-consuming endeavour. That’s why it’s actually quite easy for things to ‘slip through the cracks’ – especially when it’s something you only generally need to think about once a year, like insurance.
It’s also very easy to fall into the trap of setting up an insurance policy, ticking the box that makes payments a set-and-forget affair, and then stuffing the policy document in the top drawer, never to see the light of day again.
“Insurance must be viewed as an investment into your enterprise – and when you make an investment, you should carry out proper due diligence,” says John Phillips, Chief Underwriting & Portfolio Manager – Commercial, Vero Insurance. “It is absolutely crucial that you examine your risk exposures first, rather than how much coverage you can afford.”
What insurance do you need?
You probably already familiar with the major types of insurance available to small business – but in an increasingly competitive market, insurance companies are busily coming up with all manner of different options, to provide a tailored insurance product that’s just right for the business you own.
The easiest way to find out what kind of cover you should be looking for is to call around a few different insurance providers and speak to a consultant, or visit an independent insurance broker to get their advice on the package that will suit you best.
We spoke with John Ripepi, the Chief Executive of WFI, one of Australia’s leading insurers with a strong focus business, farm and strata policies. John outlined several key points that every small business owner needs to consider, when it comes time to choose the right coverage.
“Make sure you know what kind of insurance you need for your business,” John Ripepi says. “Many businesses are either under insured or don’t have the right insurance covers in place. Talking with an insurance representative can help you tailor your insurance package.”
“If you have any doubts about your coverage or you simply don’t have time to fully scrutinise your risks, you should seek out the advice of an insurance broker,” says John Phillips. “Relying on the expertise of an insurance broker is a great way of ensuring you’re getting the best level of protection for your premium. A broker can find the best policy for you business and then tailor it to meet your specific needs.”
Having a tailored policy will mean investing a bit more time and effort into the process of getting the policy in place, but it’s a vital step towards making absolutely sure that you’ve got your business covered properly – and a really important part of that, says John Ripepi, is being very clear and open with any information about your business.
“Don’t withhold any important information from your insurance representative about your business,” John Ripepi says. “You need to be very clear and honest about its exposure to loss, to ensure you are offered the right level of insurance cover. Providing the insurance company a complete history of your business may also result in a lower insurance premium.”
Business owners who do not have any business insurance, on top of asking questions about the types of insurance, should also ensure that they explain what their business does so that their insurance provider can understand the risks that the business owner faces.
Small business owners that are currently insured should ask what their current insurance policy actually covers them for, so that they can understand the policy and the protection it provides. It is also important to ask about other types of cover that may be available to protect them and their business, for example, Business Interruption.
Once you’ve got an idea of the different kinds of cover you’d like to have for your business, it’s time to start shopping around to find the best deal.
You get what you pay for
Another common mistake that small business owners make is looking at insurance as a ‘grudge purchase’ – and that’s largely because running a business is time-consuming enough without spending hours and hours sorting through paperwork when renewing your cover is as easy as simply paying the policy fee, and forgetting about it again for the year.
The issue with that approach is that it doesn’t take into account any business growth or expansions – and it won’t be very long before you’re inadequately insured, and running the very real risk that even a minor mishap could spell the end of your business. That’s why the experts all agree that business owners need to spend a little more time asking questions of their insurance provider to ensure the cover they have meets their requirements.
It’s also vital for business owners to understand that simply going with the lowest cost can be a massive mistake.
“The cheapest quote is not always the best,” says John Ripepi. “Business insurance can be complex, so it’s vital to check to make sure that the insurance plan will actually cover your requirements. Make sure you also read what is not covered in the exclusions section.”
Understanding what your policy does, and precisely what is covered – and what isn’t – is the responsibility of the policy holder. And this is where due diligence comes into play for any small business owner, who might take out insurance policies that they don’t really understand, which again can leave them exposed to unnecessary risk and major expense in the event of an accident.
Obviously, Some insurance policies are relatively easy to understand, for example fire insurance and theft insurance. However, there are some policies such as Business Interruption, which are a little more complex, but they can offer valuable protection to a small business. According to the Insurance Council of Australia over 50% of businesses that do not have Business Interruption cover will not resume normal operations following a physical loss.
Time to rethink your cover?
Re-assessing your policy is one of those tasks that the typically time-poor small business owner will put off as a bit of a chore – but the experts tell us that it’s actually a crucial part of making sure your business is in good shape, and able to weather the inevitable storms that occur.
That means that your policy should be reassessed at least once year, according to the experts.
“Don’t risk being under insured,” John Ripepi says. “Thoroughly review your sum insured every year, remembering to increase it if you purchase new equipment for your business or make changes to your business.”
It’s one of the joys of small business that they are wonderfully flexible, adapting quickly to their customer’s needs and the wider Australian economy. They can grow rapidly too. What often starts out as a mobile or home based business can quickly grow into one that requires a larger premise with more stock or equipment – and what happens then is that, within the space of a year the business may have completely ‘outgrown’ the original insurance cover.
Even if a business has not changed its operations much, there will still be other aspects to consider, for example, increases in rebuilding costs and general inflation mean that the sum insured needs to be reconsidered.
According to John Phillips, there are a number of changes that can affect your coverage needs.
“If you’re leasing new premises, your lease agreement may specify that you must cover certain parts of the property, such as the glass, toilets and basins, or air conditioning,” John Phillips says. “You should review your lease agreement and current policy to find out what you need to cover. Also, if you are using subcontractors as part of your business, there is a risk you may be liable for injuries to them in the course of their work for you. It’s important to check with your insurer that you have adequate coverage for this potentially very costly risk.”
“You should also check that each subcontractor has their own insurance in place for injuries or damage they may cause,” John Phillips continues. “In many cases a policy will not respond to claims arising from the acts of subcontractors and this can harm your reputation and leave you out of pocket.”
It’s not just the subcontractors that need to be considered either. Any change in staffing arrangements for your small business will mean that your policy will need to be looked over, to make certain your business is covered.
“If you’ve added new staff and managers to your roster, in addition to updating your Workers Compensation insurance, you should consider a policy such as Management Liability,” John Phillips says. “This covers a variety of risks such as unfair dismissal or workplace bullying claims.”
New gear? New policy!
As any business grows, there will always be the need for investment in equipment upgrades, or even building improvements to your premises. However, usually the last thing on a business owner’s mind when they’re experiencing the thrill of expanding their business and buying new gear is the consideration that, should the unthinkable happen, would it all be covered under their current policy.
“If you’ve purchased any new equipment or business contents, whether they’re tools, computers or store fittings, you may have to increase your sum insured on your policy so it matches the cost of totally replacing all your equipment and contents if they were all lost in a single event,” says John Phillips. “You need to make similar increases to your building sum insured if you’ve made any improvements to your business premises. Even if you haven’t made any changes to your contents or property, it is important to check if any of them have become more valuable or harder to replace since your last renewal and adjust your coverage accordingly.”
Likewise, even an increase in the levels of stock you have on hand might be leading you into being underinsured – and it’s important to understand that simply counting up your stock once a year and insuring your business for that level might not be enough.
“While you may have a certain amount of stock at renewal time, don’t forget to account for any increases in stock over the year,” John Phillips ays. “For instance, if you are a grocer with a higher level of seasonal stock during the summer months, you should make sure your policy covers the value of those items or arrange for a seasonal increase to be made available for those peak times.”
What if times are tight?
The downside of the flexibility of small businesses is that they can often contract as rapidly as they grow – and that can mean money gets a little tighter as well. It’s often the case that when this happens, and it’s time to re-assess your insurance cover, small business owners will see the opportunity to wind back what they’re paying for insurance.
But that’s not always a wise move, according to John Ripepi. “If your finances are tight, you may want to consider a higher level of excess rather than reducing your sum insured,” he says. “This will ensure that you are properly covered.”