The importance of insuring your business

Seeking the most appropriate insurance to cover your business is an arduous task for those starting out.

But things can (and do) go wrong, as a natural therapy centre in Queensland discovered about a year ago.

A fire that started in a neighbouring business spread and damaged part of the therapy centre, which had only been trading a few months.

Avant Guard account manager Sharon Austin says the building sustained enough damage to halt trading for three weeks.

“The business had business interruption service, but if they didn’t, they would have been in a real mess,” says Austin.

But those starting out in business are renowned for overlooking the importance of insurance, according to the director of AIIB Insurance Brokers and author of Risk Your Business, Risk Your Life, Tony Bourke. He penned a book after seeing small businesses repeating the same mistakes.

“Start-ups commonly forget about budgeting for insurance altogether. It’s often a last minute consideration and is bought after a frantic call to a call centre, where a business owner gets sold whatever they’ve been advised over the phone,” Bourke says.

How to seek insurance cover

If you’re starting out, firstly decide if you’d prefer to deal directly with an insurance company, or go to a third party, such as a broker, agent, bank, building society or finance company.

If you decide to go direct to an insurance firm, you will most likely be able to purchase the policies you require over the phone. However, some insurers send staff out to speak to you face-to-face.

Or, you can seek advice from a third party. In this instance, consider approaching your bank, building society or finance company, which usually offer their own insurance or have a third party arrangement to underwrite their insurance.

Alternatively, you can go to an insurance agent, which represents the insurer and may deal with more than one insurer, so may be across a wider product range.

Your last option is a broker, who represents their clients (you) and will deal with a variety of insurers and be across a range of policies. Brokers cost between $50 and $200 a year on top of the premium and can advise on the best polices for your business and seek quotes on your behalf. They also handle everything in the event of a claim. Whichever way you go, insurance policies are tax deductable.

Once you decide on the best approach, Bourke recommends making a list of the top five things that would be catastrophic for your business. “You want to get advice after deciding what sorts of events would have the biggest impact on your business,” he says.

And while it’s tempting to find ways to reduce premiums, do so with extreme caution, says Chris Stallard, manager SME portfolio, Vero. “The cost of insuring a property can be reduced if the owner invests in fire prevention and security, or opts to take a higher excess.

“But ultimately, a business gets what it pays for, so business owners should consider the risks they’re taking on when choosing an option that reduces premiums,” Stallard says.

What to consider

Most start-ups generally begin in a home office, and it is tempting to simply rely on your home insurance policy for cover.

But if customers or suppliers may visit your home, it’s important to tell your insurer that there is an element of commercial activity taking placing at the premises, says Adrian Kitchin, director of operations at Insurance Advisernet Australia.

“If you have equipment like printers and computers that are dedicated to your business, these may not be covered by the insurer if they’re not specifically noted.”

A home-based office style of business with limited equipment may be charged as little as $1,000 for basic public liability insurance, he says.

“However, if you run a more complex business or have equipment, such as motor vehicles or other machinery, you will expect to pay far more, as insurers consider their risk exposure to be much greater,” Kitchin says.

No matter where you trade from, you should protect your business from a loss that could shut you down before you get on your feet, Twain Abbott, national underwriting manager of CGU Insurance, says.

These are severity-type losses and arranging cover to protect your property and liability is vital, he says.

“You should also consider business interruption insurance, should your business have a loss soon after start-up. Other covers such as burglary, money, glass and machinery breakdown will provide insurance protection for events that are more likely to happen but would not be as severe,” Abbott says.

“You need to weigh up what you can afford against the peace of mind from buying these covers. You can also reduce the likelihood of the need for additional policies by improving security, instilling good management practices like handling cash and regular maintenance of machinery. Or, consider increasing the standard policy excess which may offset the cost,” he says.

Some insurance policies to consider:

• Fire and defined events – Covers assets such as stock, contents, fixtures and fittings against events such as fire, wind and water damage.
• Business interruption – Covers loss of profits after a fire or listed peril, burglary and money loss.
• Burglary – Cover of theft due to forcible entry to your business.
• Money – Loss of money in transit/safe/office.
• Glass – Internal and/or external glass against accidental breakage.
• Liability – Cover arising from your business activities to the general public. Shopping centres/council require this for retailers.
• Machinery breakdown – Loss or damage to machinery as a result of breakdown.
• Electronic breakdown – Loss or damage to electrical or electronic items.
• Goods in transit – Should be considered if you constantly deliver goods to customers.
• General property – For tools of trade such as notebook, mobiles, tools away from the business.
• Work cover – Mandatory cover for work related injury claims by employees.
• Disability/income protection – You may have to consider this cover if you’re forced to stop work during an accident or illness.
• Management liability – To indemnify the insured against legal liability arising from or in connection with the management of the company.
• Company – Claims that could arise such as unfair dismissal, sexual harassment, etc.

Source: Fred Naddle, director, Capital Mutual Insurance Brokers.

** Note: This is not an entire list of the types of insurance policies on offer. Make sure you get independent advice suitable for your business.

When making a claim

Losses or incidents that may result in a claim need to be reported as soon as practical after the event to your broker or insurance company via phone, email or fax.

Include a description of the incident, date and time of the incident, a location, estimate of loss and an explanation of the action taken to minimise loss.

And while it’s tempting just to pay your insurance each year without a second though, businesses should take the time to review all policies every 12 months, recommends Austin.

“You may have purchased additional equipment or sold equipment and that all needs to be noted with your insurance provider,” she says.

Tips for dealing with an insurance broker:

• The Australian Securities and Investments commission regulates all general insurance brokers. Always deal with a licensed broker able to provide their license number.
• Deal with a broker that is a member of the National Insurance Brokers Association as they are subject to a code of conduct.
• Find out if the broker belongs to a buying group. These brokers tend to have available agreed broader insurance policies.
• Find out if the broker has experience in dealing with businesses similar to yours.
• Be honest with the broker. Remember that the more information you give a broker, the more relevant the advice will be.
• Ask for a Financial Services Guide, which highlights how a broker operates and outlines their services and fees.
• Request all quotes are provided in writing. Ask questions about the quote to understand the reasons behind their recommendations.
• Ask how the broker supports you in the event of a claim.
• Don’t just look at the price of insurance, consider the whole package including private, service and experience.

Source: Fred Naddle, director, Capital Mutual Insurance Brokers.