Business insurance can be an extremely complicated endevour. All businesses need it, but how do you make sure that you’re getting the right plan for your needs? The state of insurance in Australia is changing, and Sarah Pietsch, Director of Aweso Insurance joined Josh to chat about it.
Why Does Your Business Need Insurance?
Other than your house or landlord’s property that you might own, your business is probably the next biggest asset that you own. Business insurance is just a form of protecting that asset and yourself.
Basically, all insurance is a form of risk management, where you’re essentially paying the insurer to take on any risk that you face in your business. It’s a form of protecting what you work so hard for. As a business owner, you work very hard and it would be devastating if your business just stopped being able to operate tomorrow.
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What Insurances Do Business Owners Need?
It just comes down to how much risk you want to essentially pay insurers to take for you. How much risk do you want to take on yourself?
There are some insurances that you need to have like workers’ compensation and even cyber insurance if your business is turning over a certain amount of money. But many of the insurances you don’t necessarily need to have are forms of risk management.
If you’re happy to take on all the risk and if you can look at your business and say to yourself, “If it burns down tomorrow, that’s okay. I can bounce back from this,” then you’re not going to take out insurance. But if you’re someone who’s going to be devastated if your business burns down tomorrow, do everything you can to stop that and get a fire extinguisher and put smoke alarms in.
What You Need to Know About Business Interruption Policy
Business interruption policies cover you if you’re not able to operate as normal, e.g. due to events stopping your business being accessible. If the power was out for two days or five days, it would enact the policy, but if it was out for two hours, I don’t think a policy would respond then. Generally, there’s a time limit with a business interruption policy, the same way other policies have excesses.
With the floods that we had in Brisbane in early 2022, a restaurant that we insure that’s only open on the weekends was shut for one of the weekends because of the floods. Trees were down on roads, so nobody could get to the restaurant, but under their policy, it had to be shut for more than two days. Because they were only shut for one weekend, we couldn’t put in a claim for that.
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What’s New: Cyber Insurance
Cyber insurance is new. We’ve had businesses come to us saying that they’ve been told that they’re not in a position where they can get cyber insurance but they need to have it for their business to operate. For us, it’s been, if anything, a lead generation, but we’re not an insurance game—we’re in the IT game. It’s helping us help them make sure that we can mitigate some of their risks as well.
Why is the Industry Changing?
It has been hardening for several years and it’s going to continue to do so. There are many reasons contributing to this, such as Covid and the natural disasters that we’ve had. Every time you turn on the news, it’s a bushfire, flood, or hail. There have been so many massive claims and lawsuits that have come out of that. The insurance market has basically lost a lot of money over the last few years.
Also, what hasn’t helped is when insurers take your money, they invest that money to make more money, but they haven’t been able to do that as successfully as they normally do because interest rates have been at practically zero. So, the insurers are narrowing their appetite and what they will insure. They’re taking on less risk, which then pushes the price up for consumers because the consumers don’t have as many options to go to. The market is just going to continue to harden, which means for consumers the price will just continue to go.
We have seen some of the policies that we do jump as much as 50% in the last 12 months. Usually, that’s when they’ve had a decent size claim in there as well. But for a business that’s already paying, I think they’re paying like $50,000 a year in insurance, that’s a 50% jump in. That is a significant increase.
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What’s New: Cyber Insurance
Cyber insurance policies typically provide coverage for a range of expenses and losses that can result from a cyber incident. Some common examples include:
- Costs associated with investigating and remediating a cyber attack or data breach
- Business interruption losses due to system downtime or data loss
- Liability for third-party damages resulting from a breach or cyber attack
- Costs associated with notifying customers and other stakeholders of a breach or cyber attack
- Legal fees and regulatory fines related to data breaches or cyber incidents
- Costs associated with restoring data and systems
I like to think of buying any insurance (including cyber insurance) as like buying a fire extinguisher. It’s something you buy and you have in your house and you hope you never have to use it because if you’re using it, something’s gone terribly wrong. And if you’re using it, you want to make sure that you have a really good one to put the fire out.
How do you make sure you are insured appropriately?
Contact an insurance broker that will come out and talk to you about your business and ask questions. We try and do that with a lot of our clients because just by going out to their business, we can pick up a lot of information that they wouldn’t think to tell us and at times we wouldn’t even think to ask.
You need to have an insurance broker that’s willing to sit down with you and go through your business—what you’re doing, how you’re doing it, why you’re doing it that way, what practises you’ve put in place that are going to help mitigate your risk. And then they can go to the underwriters and get the insurance that suits your business the best.
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Can You Be Over-Insured?
I don’t think we’ve ever really come across anybody who has been over-insured. We’ve come across so many who have been underinsured or who have had exclusions in their policy that exclude the activities of the business.
Years ago, we had a tiler who had gone through an online brokerage to get insurance. We had a look at his policy that he had been renewing for a couple of years which excluded renovation work. Now, renovation work was probably about 85%-90% of what he did, so a huge percentage of the business that he was conducting was not insured. People just don’t realise how these little exclusions can deeply impact the outcomes of any claims that they have to put in.
Insurance Options Can Be Confusing
Insurance can be quite confusing, and a confused mind says no. A lot of people will just go with what they think is right, as opposed to going and getting the proper advice and finding out what is actually right and getting a policy that really reflects their business activities.
Insurer’s Risk Appetite Is Smaller Than Before
Overall, the insurance market is hardening, and it has been and it will continue to be for a number of years. The appetite of insurers is becoming smaller and smaller so I would say that in general, it’s even harder to insure these days. Many insurers are pulling out of so many different areas just because they’re trying to minimise their risks.
Can you change your insurance within the 12-month period?
You should call your insurance broker or if you’re going direct, you should contact your insurer. And yes, you should be able to change your policy. There may be costs involved in that. If there’s a higher risk for the insurer, they’re going to charge you for that.
If something changes in your business and you have pivoted in what you’re doing in some way, speak to either your broker or your insurer and keep them up to date. Don’t wait until the renewal comes out to discuss these things because you might change something in your business at the six-month point and you’re not insured for that activity for six months. Jump onto Aweso Insurance.
How Long Does a Business Insurance Review Take?
It depends on the complexity of the business, their claims history, if they just need a simple business pack or 15 different types of insurance to cover all the aspects of their business, etc. If you’ve got an ecommerce store, we could probably do that in a 20-minute phone conversation as long as you’re not selling something that’s strange or that kids may swallow.
For an average business anywhere near Brisbane, we like to go out and meet with them to check what they’re doing and how they’re doing it so it’s generally an hour. We can get as much information out of that time as possible, and then we can start going to the underwriters to look at getting quotes and then we can generally just nut it out over email after that.
Sarah Pietsch has extensive experience working with complex and unique insurance programs. She and the rest of Aweso Insurance facilitate the right insurance program for their clients’ unique needs, delivering protection and cost efficiencies.