Insurance is joining the long list of rising costs keeping small business owners awake at night. According to the Insurance Council of Australia (ICA), some small business insurance premiums have jumped by up to 60 per cent since 2019.

The industry body says outdated liability laws, soaring legal costs and excessive red tape are pushing prices higher.

In submissions to a Parliamentary Joint Committee inquiry into small business insurance, the ICA has outlined a reform plan aimed at tackling the key drivers behind rising premiums.

The ICA claims when insurance becomes unaffordable it hurts the entire community.

Why insurance premiums are climbing

The Insurance Council says a big part of the problem is Australia’s liability framework, which hasn’t been comprehensively reviewed in 25 years. Over that time, legal costs, claim volumes and system inefficiencies have steadily increased, pushing up the cost of policies such as public liability and professional indemnity insurance.

Andrew Hall, CEO of the Insurance Council of Australia, says too much money is getting lost in the legal process.

“Too much of what should be going to injured people is being eaten up by legal costs, delays and red tape,” Hall said. “It’s been a quarter of a century since anyone properly looked at these laws, and the case for reform is overwhelming.”

Calls for industry reforms

In its submission to the parliamentary inquiry, the Insurance Council is pushing for a number of changes designed to reduce claims costs and make insurance more affordable. One proposal is a national review of liability laws, which the industry says would help address growing costs linked to injury claims and legal disputes.

The Council is also calling for caps on legal fees and faster claims processes, arguing that legal costs currently consume too large a share of compensation payouts.

Another recommendation is a national ban on “claim farming”. This is where people are cold-called or pressured into lodging injury claims, which the industry says artificially increases claim numbers and drives up premiums.

Insurance a barrier to business

Insurance is often required to sign contracts, lease premises or secure work, meaning the rising costs of premiums are making it an increasing barrier to doing business form many small biz operators.

The Insurance Council says some government procurement rules are making matters worse by requiring businesses to carry insurance far beyond what the job actually needs. The ICA wants fairer procurement rules, so businesses aren’t forced to take on liabilities they can’t realistically insure against.

“Affordable insurance is what keeps small businesses and community organisations running; when a local café or a community sports club can’t get cover, it’s the local community that loses out,” Hall said.

Helping businesses manage risk

Alongside legal reforms, the Insurance Council is also calling for funded risk management programs to help businesses reduce the chance of claims in the first place. Fewer incidents and safer workplaces mean fewer claims and, ultimately, lower premiums.

“Well-targeted reform can bring costs down while still making sure injured people get fair compensation, and that’s the outcome we want to work with governments to deliver,” Hall said.

The parliamentary inquiry into small business insurance is currently examining the challenges facing the sector. The Insurance Council has lodged six separate submissions covering areas including public liability, professional indemnity, cyber insurance, business package insurance and workers’ compensation.

Business owners will have to wait and see whether the inquiry finds in favour of the proposals.

Want more? Get our newsletter delivered straight to your inbox! Follow Business Builders on Facebook, Twitter, Instagram, and LinkedIn.