There’s been some new risks cropping up for Aussie small businesses – in many ways you might not expect.

It’s one thing to operate a small business that’s humming along, business as usual. It’s quite another when something goes wrong.

This can include anything from natural disasters to staffing issues.

Even if it doesn’t directly impact your business, you can still be impacted by the fallout in other ways. The recent floods in Northern NSW are a good example. Many impacted businesses were located outside of the flood-affected area and suffered from the resulting supply chain issues.

Kochie’s Business Builders recently spoke with Elliot Hill, Managing Director of Business at QBE Insurance, to find out what risks are becoming increasingly common and how we can get ahead of them.

Three key insurance risks for small business

“I’d probably highlight three common risks for business,” Hill tells us. “The first is around what we call business interruption. And that means, ‘Can I carry on my business if there’s a fire at the premises or if there’s a flood?’

“The second is about how to protect your employees and the customers that enter your premises. And the third is what we call underinsurance. That’s where you may not have enough insurance to actually pay for a claim in your premises or with one of your staff members.”

Each of these areas can affect any Australian small business. When you’re preparing your risk review and management plan, as well as a business impact analysis, ensure you have a strategy in place to protect your business from these growing insurance risks.

1. Business interruption

This is one of the more ‘obvious’ business risks that a small business owner should prepare for. What happens if you can’t physically operate your business for any number of reasons?

These could include, but are not limited to:

• Natural disasters: bushfires, cyclones and storms – we’ve had it all across Australia in recent years.
• Technology failure: your entire network goes down making running your business impossible.
• Security: thieves break in overnight, steal critical supplies and vandalise your premises.
• Staffing: your inability to fill critical roles means you can’t run your business properly.

The list goes on… and on and on.

“If you’re a sole trader, what happens if you are sick or can’t go to work? These are the types of things that you should be asking,” says Hill. “If you drive to work or you use a car, what are you going to do if you are unable to replace that? These are the types of things that you really need to work out and have the answers for.”

If an interruption occurs, business owners will need to gather relevant financial records to establish the extent of your business loss. This applies to any business interruption claim. You need to show evidence of your reduced revenue during the period you are claiming for. What evidence is accepted will vary depending on the terms and conditions of your insurance cover, so check directly with your insurer to make sure you provide exactly what they need.

Take the time to prepare a comprehensive risk assessment for your business, and consult an industry insurance broker if you need help. Image: Adobe Stock

2. Underinsurance

Another major issue small businesses are facing is underinsurance. It’s when the amount you’re insured for isn’t enough to cover your losses.

There are plenty of reasons why a small business becomes underinsured. For example, you might have changed the level of stock you’re currently holding to counteract the recent slow supply times. Unless you’ve been in touch with your insurers to increase the amount of cover, you might not be insured for the full amount of stock you’ve now got sitting in your warehouse or store.

Hill points out that there are different blind spots in different industries. “If you think about the last few years and how much things cost now, compared to what they cost two years ago, a lot of businesses don’t have the right insurance in place to be able to pay for their assets,” he says.

“If you think about cars, most secondhand cars have gone up massively in terms of value, because there aren’t enough cars in Australia. These are the types of things you really do need to think about when you’re insuring.”

Another example may be the cost of repairs to building, as some building products like steel and timber have shot up in price by more than 20 per cent since last year.

How to determine your correct level of insurance

To determine the correct level of insurance you need, consider everything you use to keep your business operating. If any of those things were damaged or unable to be used, would you be able to run your business without them?

Also ask yourself if you’ve changed anything about the way you do business. Have you changed your strategy or supply chain? Launched a new product? Moved premises? Working remotely? To make sure you capture everything, it’s a good idea to talk to an insurance broker who specialises in your industry.

One final word on underinsurance: if you’re running your business from home, home and contents insurance policies won’t pick up your business cover. You should also consider that running your business from home may impact your home and contents insurance. Check in with your insurance provider to check your coverage in both instances.

3. Liability

A recent QBE SME and Insurance report identified the key role liability insurance plays in protecting small businesses if something unexpected happens.

For example, if someone visits your business premises and something happens to them while they’re there, you may be legally liable for whatever injuries they incur.

The report found that the two most expensive liability claims for small business owners are injury to labour hire personnel and injury to third party worker. Electrocution and fire were in position three and four and defamation claims were the fifth most expensive liability claim type.

There were more than 120,000 serious claims from 2019-2020, according to Safe Work Australia. So it’s in your best interest to take the work health and safety (WHS) requirements very seriously and ensure you have adequate liability insurance coverage in place.

This means protecting not only your staff, but your customers as well.

“Think of your customers,” Hill adds. “A mismanaged risk can jeopardise your whole well-earned customer base with just one error.”

Businesses could see claims of thousands of dollars for an injury, with slips and trips among the most common claims.

The takeaway is to review your insurance policy regularly, especially if your business is changing as fast as the environment around it.

Speak to an insurance broker or agent or talk to your insurer to help understand your policy better. For more info, visit QBE Insurance’s Small Business Insurance page.

This article is brought to you by Kochie’s Business Builders in association with QBE Insurance.

The advice in this article is general in nature and has been prepared without taking into account your objectives, financial situation or needs. You must decide whether or not it is appropriate, in light of your own circumstances, to act on this advice. You should ensure you obtain and consider the Policy Wording or Product Disclosure Statement and Target Market Determination for the policy before you make any decision to buy it.  For more information, visit www.qbe.com.au.

Feature image: AdobeStock