A new report from the Small Business Commissioner has found that insurance is often unavailable or too expensive for small business and direct action is needed to improve insurance affordability.

Insurance is a rapidly increasing cost for many small businesses, with many legislatively requiring more than one type of insurance to operate. Many are struggling to secure affordable insurance that meets their commercial needs. A Small Business Commissioner report out this week says that the insurance sector has also reported that price and availability have been affected by repricing of risk, reduced market options, increasing costs from natural disasters, and increasing costs for liability and indemnity claims.

The report found that as a result, insurance is becoming increasingly fraught for small business. A Commission survey of around 5,500 small businesses indicated that more than one in four small
businesses are dissatisfied with the availability and affordability of insurance for their business.

Unaffordable and unavailable

“Insurance can be unaffordable and even unavailable for small businesses in areas like public liability, professional indemnity and construction,” says NSW Small Business Commissioner Chris Lamont. “Small businesses in certain locations, such as those at higher risk of flooding, can also find insurance unaffordable. It is leading to significant underinsurance in the areas that most need it.”

Acute industry affordability and accessibility challenges include:

• Public liability for tourism, amusement, leisure and recreational, and some business sectors
• Professional indemnity for financial advisors and building industry
• Property insurance in building construction

Small businesses located in specific areas are also finding it tough. This might be due to increasing premiums for areas at risk of bushfire and flood. The high cost of premiums in these high-risk locations can lead to significant underinsurance in the areas that most need it.

In addition, small businesses lack the capability to identify, negotiate and pay for effective insurance cover.

Hardening insurance market

This is all compounded by the fact that Australia is experiencing a ‘hardened’ insurance market. That means insurance prices are generally increasing due to factors like natural disasters, an industry reporting price correction, and the increasing risk of costs for indemnity and liability claims.

Fortunately, the report also indicated opportunities to improve insurance outcomes for small business.

“While there may not be a silver bullet, governments have policy levers to drive better outcomes for small businesses and in doing so reduce insurance costs and increase coverage,” Lamont says.

Direct government action needed

One of the key findings was that the NSW Government needs to take direct action improve small business insurance affordability. Some of the suggested strategies included:

Establish an insurance coordination function

One of the primary goals of this would be to assist NSW Government and other agencies to better understand the impact of policy decisions on the insurance market and small business.

Facilitation of insurance alternatives

Supported by the new insurance coordination function, the NSW Government would have mechanisms in place to assist industry or other stakeholders to examine measures to improve insurance, including insurance alternatives.

Provide relief from insurance taxes and levies

This included the recommendation to provide relief from insurance taxes and levies. Despite a small business exemption being available in some circumstances, many small businesses
continue to pay significant taxes on their insurance premiums. The NSW Review of Federal Financial Relations recommends: “All specific taxes on insurance products, including the Emergency Services Levy in NSW, should be abolished and replaced by more efficient and broad tax bases, to improve the affordability and uptake of insurance.”

The report recommended that the NSW Government should also expand the scope of policies where there is an exemption for small business on insurance duties.

There was an acknowledgement that while the Commission’s recommendations won’t address all challenges, the recommendations are an important first step to improve insurance affordability, sustainability and coverage for small business.

You can read the full report here.

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https://www.kochiesbusinessbuilders.com.au/public-liability-crisis-crippling-small-business-says-ombudsman/