Business

Aussie small businesses at risk of underinsurance

Australian small businesses are at risk of underinsurance, with a recent report showing that many SMEs have become complacent and have no protections in place if a negative event were to occur.

Only 43% of small businesses think they are fully covered from insurable business risks, according to the newlyreleased bonus chapter of the Vero SME Insurance Index 2022.

While this shows a level of understanding among small businesses about their cover levels, 34% said they have no plan if something bad were to happen, the survey found. Some others haven’t even thought about what might happen or simply choose to cross that bridge when they come to it.

“Small businesses seem to be generally aware that they may be underinsured however due to the additional cost of increasing coverage some may have made a choice to not look further into their cover due to price concerns,” says Jane Mason, Head of Product Channels and Risk at SME insurance platform BizCover,

“What’s worrying is that the dangers of underinsurance can leave the insured in a worse situation if underinsured or not insured at all.”

The conditions are set for an underinsurance crisis

From foods, bushfres, and the Covid-19 pandemic to supply chain issues and the rising cost of living, Australian small businesses have had to contend with multiple problems in recent years.

This has had an impact on the revenue of many businesses, causing some to look for ways to save money.

Vero’s report suggests that SMEs with declining revenue are less likely to say that they are completely covered and are also less likely to have a plan in place for a negative situation.

“It’s tough out there. And unfortunately, some businesses put their insurance on the chopping block,” says Mason. “But what this also says is that the businesses who are more likely to be hit by underinsurance are already struggling.”

Exacerbating the issue is that rising infation and major supply chain disruptions are pushing up the claims costs for insurance companies, which ultimately results in higher premiums across some types of insurance.

This can put businesses who are renewing their coverage at the same levels as the year before at risk, as the cost of equipment, stock or machinery has, in many cases, increased beyond what they were originally insured for.

“What was adequate cover a year ago may not be adequate cover now because of the rising cost of materials,” says Mason.

The risk of underinsurance

For Aussie businesses, what all this means is that some could be left with a serious fnancial crisis by not having enough insurance to cover their loss.

For example, say you insure your business for $100k and a fre rips through your store destroying it. Once you factor in the cost to repair your business, the total bill comes out to $160k in damages. That’s $60k you’ll have to pay out of your own pocket.

Another way you can fall into the underinsurance trap is by triggering a underinsurance clause.

These clauses are designed to discourage businesses from purposely undervaluing their assets and are triggered by underinsuring usually by 20% under the true value.

Importantly, this occurs even if the damages fall within the insured amount.

So, in the above example, even if the damages were only $40k, your insurer will not cover that full amount if the clause is triggered despite you having $100k of cover.

“Many people may think that the insurer will cover it since the cost of the damages easily falls within the insured amount but that is sometimes not the case if the business is underinsured,” says Mason. “If you purchase below what your business’ true value is, you could become responsible for the share of the loss and not receive full payment for your claim.”

What can small businesses do?

While the current situation is tough, there are some things Australian small business owners can do to avoid being underinsured.

Regularly scheduling some time to consider your exposure to risks could help avoid problems later down the track. This will allow you to consider what risks your business is exposed to and think about the possible scenarios that could happen if you weren’t protected in the event of a claim.

“It’s important to insure your business for an amount that is suffcient to cover not only the tangible assets, but the cost of repairs and any other variables that might leave you out of pocket,” says Mason. “After that, consider jumping online to compare quotes so you could then decide whether the price of the cover justifes the protection.”

While reviewing your cover at renewal is a great time to consider your options, you could check in at any point throughout the year.

And with infation and the cost of claims rising, it’s become even more crucial to regularly keep track of the actual value of your building and business contents to avoid being left with inadequate cover if a claim were to arise.

TRAINING FOR THE TECH JOBS OF TOMORROW

Budding Information and Technology (IT) professionals are honing the latest industry techniques as part of an innovative program that will equip them with the skills they need for the rapidly changing technology landscape.

Minister for Science, Innovation and Technology and Minister for Skills and Training Alister Henskens said more than 50 young people are participating in the NSW Government’s IT traineeship program through TAFE NSW.

“This program will ensure we develop a strong and robust IT workforce, which will help grow the economy and secure a brighter future for NSW,” Mr Henskens said.

“The NSW Government is delivering more opportunities than ever before to help people get the skills they need for the jobs they want, and this program is another great example of that.”

The two-year IT traineeship has been designed for Year 12 school leavers seeking to commence a career in the high-growth and in-demand tech industry, which combines a formal qualifcation with employment and on-thejob training at a NSW Government agency.

Minister for Customer Service and Digital Government Victor Dominello said IT skills can take you anywhere and this program is preparing students for the jobs of tomorrow.

“The pandemic has seen a rapid increase in the adoption of emerging technologies and there is a growing need to improve our digital readiness to ensure NSW remains at the forefront of a booming industry,” Mr Dominello said.

“By giving young people a foot-in-thedoor, they are gaining real-world experience and building industry connections, which in turn will support their ongoing education and employment pathways.”