As a business owner, your enterprise is one of your most valuable assets. Therefore, it makes sense to take the necessary steps to protect it.

In Australia, inadequate cash flow is the primary reason small businesses fail. [1]

Which highlights the importance of having a robust risk transfer strategy in place, which may include transferring risks to insurance to safeguard against financial losses. 

“1 in 10 Australian small businesses with insurance don’t have enough cover to protect themselves.”

The importance of a comprehensive risk transfer strategy

Insurance is a risk transfer tool that businesses can use to safeguard against financial losses when the unexpected occurs, such as loss of income due to equipment breakdown or storm damage. A well-designed risk transfer and insurance program can help safeguard your business against unexpected financial losses and build resilience for your business during challenging times.

Did you know that ‘one in ten Australian businesses with insurance don’t have enough coverage to protect the business from the losses associated with business disruption, legal liabilities, or loss or damage to assets [2]? It highlights the potential risks associated with underinsurance.

Understanding underinsurance: Is it a risk you can afford?

Underinsurance refers to having inadequate insurance cover for your business, increasing the risk of severe financial strain if something goes wrong. The temptation of low premiums can lead business owners to overlook adequate insurance protection.

• Outdated Coverage: If you have not updated your insurance to reflect recent or future business growth, you may make your business vulnerable.
• Inaccurate Replacement Valuations: Underestimating the repair or replacement of equipment or other business assets can lead to significant out-of-pocket expenses following a storm, fire or other claimable event.
• Inadequate Sums Insured: If financial limits (sums insured) are inadequate, it may expose the business to financial losses following management or legal liability claims, or business interruption events.

The impact of proper insurance cover

So, why are property insurance premiums going up?

Well, there are several factors at play. The five main factors are:

• Low-interest rates
• Inflationary pressure
• Natural disasters
• Reduced maintenance
• Nervous investors

We’ll take you through how each of these elements impacts insurance premiums and what you can do to help.

1. Low-interest rates

Insurers are required under their Australian Financial Services Licenses to have capital reserves to cover the cost of claims. Additionally, they take out insurance policies to help cover the cost of significant claims that could eat up or go above their capital reserves.

Insurers buy their insurance from reinsurance companies who seek financial support from the Retrocessionaire market, otherwise known as the capital markets.

It sounds complicated.

In simple terms, every aspect of the insurance market relies on interest rates to help build money to cover claims. When interest rates are low, the pools of money don’t grow. Therefore, it pressures every level of the insurance market to raise premiums.

Eventually, the premium increases filter down to you at a business level.

2. Inflationary Pressure

The global increases in material and labour costs, plus supply chain issues, are driving up the cost of property repairs. So, whether it’s a partial or total property rebuild, property claims costs are becoming unpredictable and costly for all concerned.

Thus, insurers are unable to set property insurance premiums accurately. For businesses, it means higher premiums to cover worst-case scenario claims.

To assist, property owners can seek expert property assessments and develop regular maintenance programs to ease uncertainty for insurers. With accurate estimates and mitigation plans, insurers can feel confident and set appropriate policy limits and premium prices.

The global increases in material and labour costs, are driving up the cost of property repairs.

3. Natural Disasters

From Hurricane Ian and European windstorms to Australia’s bushfires and floods, the number of natural disaster claims is rising yearly. In fact, due to the extreme weather events of 2022, the global insurance industry is projected to see catastrophe losses of up to US$112 billion.

The 10-year average for natural disaster losses was US$81bn. That’s a massive shift.

So, why does this matter?

It matters because the amount of money in insurance pots needs to be improved to cover catastrophic losses. When insurance is a risky investment for the capital markets (Retrocessionaire market), it reduces the money available to cover claims.

Once again, the costs will pass down the insurance market until they reach business owner premiums.

Therefore, we must tackle underinsurance. With accurate property assessments and business information, insurers and reinsurers can set realistic premiums while boosting investor confidence in the insurance market.

When there’s enough money in the insurance market, premium prices can start to ease.

The number of natural disaster claims is rising yearly.

4. Reduced property maintenance

Periodic maintenance by property owners reduces the need for expensive claims.

A recent claim example following a significant rain event led to multiple leaks at a licensed venue. The venue owners subsequently learnt that essential roof maintenance of around $12,000 would have mitigated the damage. Repairing the water damage cost insurers $180,000 and a hefty hike in ongoing insurance premiums due to the claim.

It’s a harsh lesson to learn.

Regular upkeep of property assets is a cost-effective way to mitigate weather damage and save on premium costs.

5. Nervous investors

The riskier the insurance industry becomes, the less appealing the insurance market is to investors. Who wants to invest in a money pit with zero returns?

When the insurance market cannot raise capital to service insurance claims, there’s only one way for reinsurers and insurers to go. Unfortunately, that’s to pass the costs back down through higher premiums.

When insurers have accurate data from business owners, they can confidently calculate premiums based on known risks. Therefore, it’s in your best interests to declare everything an insurer needs to know about your business and its assets. 

The riskier the insurance industry becomes, the less appealing the insurance market is to investors.

Need advice on insurance for your property portfolio?

Clear Insurance advisers use over 75 years of commercial insurance expertise to advise business owners with multiple properties and complex insurance needs.

Our risk review provides a detailed analysis of your existing insurance programs against your business risk profile to ensure you have the most appropriate insurance program for your needs.

Contact us today for peace of mind.

Help for a flood affected business with insurance

Firstly, it’s essential that you contact your Clear Insurance adviser or insurer as soon as possible to commence your claim.

There are steps you should take to assist the process, which include:

• capturing footage and photos of the damage
• gathering evidence of ownership where you can
• write a list of all the damaged property and stock, including quantities
• document the clean-up process

While this can be challenging at such a fraught time, it will assist your adviser and insurer in moving your claim forward.

Image credit: 9news.com.au

Help for an insured and uninsured flood affected business

It’s a relief to know insured and uninsured business owners can access a range of services for financial and emotional support.

Help for flood affected businesses in Queensland includes:

Small Business Disaster Hub

The small business disaster hub offers resources, including a natural disaster checklist to help your business respond and recover. The resources include advice on a range of topics such as:

• help with insurance and tips for cleaning up.
• re-establishing your premises and business records
• assessing your finances
• managing and paying staff
• communicating with key people

Image credit: fidelitycharitable.org

Financial Assistance

It’s good to know there are government grants available to eligible businesses. They include:

• Personal Hardship Financial Assistance
• Emergency Hardship Assistance Grants
• Essential Household Contents Grant
• Australian Government Disaster Recovery Payment
• Disaster Recovery Allowance (Australian Government)

Legal Aid Queensland

For legal assistance you can contact the Legal Aid Natural Disaster Legal Helpline on 1300 527 700. The service provides help and advice on the legal issues you may face due to severe weather or flood damage to your property.

Mental health support

There is a range of mental health and wellbeing resources for business owners. They include tips, advice and support.

Beyond Blue offers a free, confidential mental health coaching support program for small business owners and sole traders called NewAccess for Small Business Owners.

Small business financial counsellors

Small businesses suffering from hardship can contact the Small Business Financial Counselling Program.

Southern Queensland – www.rfcssq.org.au or call 1300 732 777

North Queensland – www.rfcsnq.com.au or call 07 4652 5669

Queensland Tourism Business Financial Counselling Service

Tourism operators can access free financial counselling support at the Queensland Tourism Business Financial Counselling Service.

Natural Disaster Business Survey

The Department of Employment, Small Business and Training survey will build a picture of the help businesses need to recover. It focuses on South-East Queensland, Maryborough, the Fraser Coast and Toowoomba.

Queensland Small Business Commissioner

Small businesses can access support from the Office of the Queensland Small Business Commissioner. The service helps with advocacy and dispute resolution through mediation.

Fair Work Australia

Fair Work Australia has resources to help business owners understand employee entitlements during natural disasters.

Need advice on your flood affected business?

Clear Insurance is ready to help. We can provide support to all existing and new clients and guide you through the flood claims and risk assessment process.

Contact us today if you need assistance or would like to explore the risks facing your business.

So, here are three key areas to consider if you’re thinking about reviewing your insurance program.

Liability Insurance Discounts

When times were tough and venues were forced to close, the team at Clear Insurance were successful in negotiating good premium discounts for our hospitality clients. They did so by amending their public and products liability policies to “non-operational”.

Amending public and products liability policies to “non-operational” was agreed to by some Insurers on the provision that when the hospitality venue is operational in the future, the policy reverts to “operational” and an additional premium is payable when trading commences.

Note: various Insurers have differing premium discounting abilities however, the specialist hospitality underwriting agencies had a more positive approach to allowing this discount.

Business Continuity Planning & Risk Management tips for non-trading licensed venues

We recommend that all licensed venues review their business continuity plan (BCP) to ensure it is current and update the delegated roles in the BCP, given that staff may change.

Key points of consideration in your BCP:

1. People first! look after your key assets
2. Assemble your BCP team
3. Communicate, communicate, communicate
4. Review existing plans
5. Prioritise Key Business Functions

Property Risk Management

Managing your property risk exposure is crucial when licensed venues are non-operational. The advice we received from Chubb Insurance for our hospitality clients is set out below.

Recommended property risk management action items:

i) Minimum 1 person to remain on-site during normal business hours;

Note: If this is not feasible recommend minimum twice daily visits and inspections conducted at the insured premises

ii) Main Gas supply shut off (if cooking not being performed or gas not used for power/heating etc);

iii) Other utilities remain connected;

iv) All alarms, smoke detection, sprinkler systems to remain activated; v) Cash removed from the premises.

Feel free to contact Lisa Carter for further assistance.