How to minimise being underinsured

Many Australians, especially those who own businesses, discover they don’t have the cover they need in the worst possible circumstances.

Insurance is one of those subjects that many people glaze over. So, just to test how knowledgeable you are about this important but unsexy topic, see how many of the following you can answer.

Questions

  1. What type of insurance can provide cover if a natural disaster results in my business having to shut down for a period of time?
  2. What type of insurance can provide cover if a client takes legal action against me? In what industries is it mandatory to have this insurance?
  3. What type of insurance can provide a payout to cover costs relating to everything from a broken window to a tax audit to a light-fingered employee?
  4. What type of insurance is legally required if you employ staff? What is the penalty for failing to take out this insurance?

Answers:

  1. Business interruption insurance.
  2. Professional liability insurance (also called professional indemnity insurance). Those working in the medical, accounting, law and financial advice industries.
  3. Business insurance.
  4. Workers’ compensation insurance. It varies from state to state but you’ll typically be at risk of jail time if an employee has been injured (or worse). NSW imposes a ‘double avoided penalty’ equivalent to double the amount you should have paid in workers’ compensation premiums.

One in ten businesses have no cover

If you failed to get all (or any) of the answers right, you can take solace in being a typical Aussie. Survey after survey has shown that Australians don’t have a good grasp on what insurance policies might be relevant to them. Unsurprisingly, Australia is one of the most underinsured nations in the developed world (underinsurance is when an individual or business has no or inadequate insurance to cover their legal liabilities, or the cost of loss or damage to their assets).

The Insurance Council of Australia’s 2015 report on non-insurance in the SME sector showed a non-insurance rate of 12.8 per cent. Paul Nielsen, director and chair of the Council of Small Business Australia (COSBOA), says many SMEs are in denial. “Business owners tend to think it won’t happen to them. Because of this, some SMEs view insurance as dead money,” he says.

Read the full Steadfast article here.

Why small businesses use an insurance broker

Small business owners tend to be born optimists with little inclination to think about what could go wrong. That’s why it pays to have an insurance broker in your corner to safeguard what you’ve worked for.

Paul Harrison’s family-owned shoe shop in Sydney’s Neutral Bay has operated out of various locations for more than half a century. It’s used insurance brokers for the past 35 years.

“When I came on board, we already had insurance but not at the level we needed,” says Harrison. “Most of the insurance we had was good, but it took time. If we made a claim, an assessor would come along; then he’d send you forms to fill out before repairs could begin. All that time you’re not trading.”

Save yourself time

Anyone who has compared car, home or health insurance policies to try to find the best deal knows how time consuming it can be. Choosing a business insurance package is even more complex because of the range of risks requiring cover.

A business insurance broker will not only save you time sourcing the right policy, they can also save time and money if you need to make a claim.

That was Harrison’s recent experience with his long standing Steadfast insurance broker.

“We had a leakage from the residential unit above our premises that ruined our ceiling, stock and floor. With rent and wages to pay, you can’t afford to be out of business for two months. Our business insurance broker was onto it straight away. We were able to replace our flooring within two days and probably missed five days’ trading in all”.

Utilise your business insurance broker’s experience

Small business owners are great at what they do, whether it’s running a café or a consultancy. But they are rarely insurance experts. “What they may not understand is the broad range of risks they face,” says Dallas Booth, chief executive of the National Insurance Brokers Association(NIBA).

A business insurance broker will help identify the risks your business faces, then get the insurance package that matches those risks. “There’s no point buying a business package off the shelf if it only covers some of your risks,” says Booth.

“I don’t think you can do that on your own. You may think you know what can go wrong but you never realise how much [an adverse event] impacts on your business going forward,” says Harrison.

Read the full Steadfast article here. 

Why your business needs an extreme weather action plan

Extreme weather conditions are increasing around the world, and Australia is no exception. Experts predict this summer will, again, be one of the hottest on record, with severe bushfires, storms and floods all set to increase.

In the absence of the vast resources of larger organisations, there is an urgent need for small businesses to have specific plans in place.

Preparing your property and fully understanding the risks in the event of extreme weather events, in both regional and urban areas,  such as storms, fire and cyclones is vital. However you also need an overall strategy to protect your business and its assets to ensure its survival.

Building a support network

After Cyclone Larry hit Queensland in 2006, a National Climate Change Adaptation Research Facility report found businesses and individuals with strong community ties recovered better, as they relied less on overburdened government systems and their workers were less inclined to leave the area.

“Individuals, households and groups who have strong social networks are able to draw on shared material and social resources to sustain them during and through the aftermath of a cyclone,” the report said.

In both urban and rural settings, banding together during a crisis can be mutually beneficial. Having a plan for how small businesses can help each other can be the key to survival.

After the northern NSW town of Murwillumbah was ravaged by flood in 2017, locals led the recovery effort and a database of hundreds of volunteers was created to help those in need.

“Constantly we’re expecting governments and services to fix things for us,” organiser Carmen Stewart told the ABC.”I’m interested in what happens when a community is engaged first, then bringing government and services in as a partner, not as the leaders.”

Be prepared

Complacency and a failure to adapt to the increased likelihood of extreme weather is a real danger for small businesses. Research conducted by James Cook University revealed 90 per cent of cyclone-related insurance claims could be avoided through proper preparation.

Ensure you have formulated an emergency action plan for your business in the event of extreme weather, such as flooding. Educate your employees so they understand the risks and know how to react.

There are other vital proactive measures you can take. Regular maintenance on your property ensures it is as well placed as possible to handle and recover from extreme weather events. Contracting an expert to assess the structural integrity of your dwelling ensures any weak or degrading materials particularly vulnerable to damage can be repaired.

Clearing your property of refuse, such as fallen branches and bushes can help to ensure any damage severe storms can cause is limited. This includes securing outdoor items and garaging vehicles and machinery.
Read the full article on Steadfast well covered.

How to reduce your business insurance costs

More expensive premiums, higher excesses and narrower coverage are set to become an insurance reality for many Australian businesses. Here’s how SMB’s can prepare for a hardening market.

Australian businesses have benefited from a soft insurance market for some years now, but it’s time to prepare for a change.

We spoke with Steadfast Broker Technical Manager, Michael White about the cyclical nature of the market, the factors that drive it and how you can prepare for a harder market.

What is a hard or soft insurance market?

The nature of the market is driven by the availability of insurance, explains White.

“If there’s a lot of capital coming into the insurance market, it’s easier to get cover – so in a soft market insurers will chase business,” he says.

A soft market can therefore mean lower insurance premiums, discounts, broader coverage, smaller excesses,  narrow exclusions and insurers writing more policies with higher limits.

A hard market, on the other hand, is experienced when there is a decreased availability of insurance capital.

With decreased availability can come higher premiums, lower policy limits, bigger excesses, wider exclusions, narrower policy coverage and less competition between insurers.

Which pockets are hardening?

Certain parts of the Australian insurance market are showing signs of hardening already.

“We’re certainly seeing insurers not supporting certain kinds of risks such as for directors and officers generally, but in particular, D&O Side-C coverage for investor claims,” says White, referring to products that protect companies from claims made against it and its directors and officers.

High-risk property is also becoming harder to place.

“These are property risks where they have a lot of issues around the building – buildings that are unoccupied, poorly maintained or generally in a distressed condition,” White says.

Professions and businesses with a history of losses are also likely to find it harder to secure the kind of coverage they’re seeking, White adds.

The two main ways you can take advantage of a soft market are through locking in savings on premiums and excesses, or by securing higher policy limits or broader cover now if you will need it later.

Taking advantage of a soft market

The two main ways you can take advantage of a soft market are through locking in savings on premiums and excesses, or by securing higher policy limits or broader cover now if you will need it later.

“For example, if you have cover for $5 million and you know you are soon going to need it expanded to $10 million, it may be easier to get now and cheaper in the long run,” White says.

Your insurance broker may also be able to lock in future renewals on a favourable basis.

How to prepare your business

There are two main ways in which you can ready your business for a hard market.

The first is by factoring in increased costs. If you’re aware of the cyclical nature of the insurance market, you have probably been taking advantage of its current state and may have prepared by saving for the inevitable: more expensive premiums, higher excesses, lower policy limits or narrower coverage.

If not, start factoring in these costs now.

“The cost is going to be significant,” White says. “So businesses must budget for the increases if they want to maintain their cover.”

The second way is by having a long-term relationship with a good insurance broker. No matter what stage of the cycle the market is at, a good broker will understand it and your business, have good long-term relationships with insurers and be able to secure you the best cover for your individual circumstances, as well as being able to advise on likely future changes to insurance costs.

A good broker is also invaluable in a hard market when policy wordings are narrower, limits are lower and excesses are bigger  – as we’ve previously discussed, brokers can be your advocate should a claim be rejected.

For expert advice on insuring against the risks your small business faces, talk to us today.

Important note – the information provided here is general advice only and has been prepared without taking in account your objectives, financial situation or needs.

Four steps to appeal a rejected insurance claim

Few things are more devastating in business than thinking you’re covered for a loss only to find out your insurer has rejected your claim. Here’s how to appeal that decision.

Just because you’ve received bad news, doesn’t mean you should give up.

There are a number of avenues for appealing such a decision, and a good broker can be your best ally.

How you appeal a rejected insurance claim depends on the nature of the rejection, which usually comes down to one of two things.

“It’s either rejected because it doesn’t fall within the operative clause or an exclusion applies. So that’s a wording type issue,” says Steadfast’s Broker Technical Manager, Michael White.

“Or it might be a factual issue.”

White provides the example of a rejected claim for storm damage to a property – the owner may claim that damage was the result of a storm, while the insurer argues that the damage is caused by gradual deterioration.

“It’s hard to believe, but lots of people make claims when they don’t actually have insurance,” says White. “Or they’ve insured their business but they haven’t insured themselves for theft or business interruption.”

1. Broker advocacy

If your claim is rejected, your broker can be your advocate.

“You should be getting the broker’s opinion on whether there’s any grounds on which you can challenge the rejection,” says White.

If the rejection is based on a factual issue your broker may be able to help secure competing factual evidence, reports and documentation.

“For example, the insurer is going to rely on the building report – they don’t actually go out and look at these things themselves – so you could consider getting another building report,’ White says.

If the rejection is based on an exclusion, a Steadfast broker can reach out to White for his technical expertise.

“I’ll tell them whether they’ve got a grounds for arguing it or not,” he says.

2. Internal dispute resolution

If your broker can’t get the insurer to overturn the decision, the next step is requesting your insurer launch a formal internal dispute resolution process.

The internal review structure varies between insurers, but all are legally required to review the decision within 45 days. In some instances, they may choose to overturn their original decision based on a fresh look at the claim.

If not, they must give reasons why they have rejected your claim.

“Again, your broker can be your advocate throughout this process,” says White.

3. External dispute resolution

If the outcome of the internal dispute resolution process is unsatisfactory you then have every right to pursue an external scheme.

From 1 November 2018, the Australian Financial Complaints Authority will handle disputes over rejected insurance claims. If you’re making a complaint before 1 November 2018, it should be lodged with the Financial Ombudsman Service Australia. Thereafter the Australian Financial Complaints Authority will be handling disputes.

However, these bodies only have jurisdiction over certain insurance products and require other criteria to be met. Here is what’s within the scope of FOS and AFCA.

4. Court proceedings

For insurance matters that do not fall within the jurisdiction of FOS or AFCA, your final recourse is to launch legal proceedings.

“The final option is pursuing the matter in court or, depending on what state you’re in, you’ve got the Fair Trading Tribunal,” White says.

No claim without cover

While the steps we’ve outlined above may very well help you overturn an insurer’s initial negative decision, there’s very little that can be done if you don’t have appropriate insurance in the first place.

“It’s hard to believe, but lots of people make claims when they don’t actually have insurance,” says White. “Or they’ve insured their business but they haven’t insured themselves for theft or business interruption.”

Contact us for expert advice on insuring against the risks your business faces.

Important note – the information provided here is general advice only and has been prepared without taking in account your objectives, financial situation or needs. 

5 tips for insuring a shopfront

When you’re ready to push your home business from the nest and into a shopfront, it’s an exciting time. It can also expose you to a whole new world of risk that could cripple your fledgling business before it can soar.

Running a business from home is one thing, but taking the leap to a shopfront is altogether another. Fortunately, as millions before you have proven, it can be done.

But not only does it require planning, budgeting and a solid understanding of the risks you’ll face, it also requires you to take out the right insurance, says John Clark, Steadfast’s Broker Support Manager.

“If you have a computer that has your records on it and they’re not backed up properly, then you’re risking interruption to your ‘from home’ business that you can’t easily deal with”

1. Theft

First cab off the rank is ensuring you have adequate security measures in place to protect the equipment, stock and cash within your new premises.

Depending on what’s most suitable for your business, that could include a safe, bars on windows, a security guard or advanced alarm systems.

It’s also worth considering insurance against theft and property damage.

“What happens in most burglaries is that, not only do they come in and take stuff, but they damage things” Clark says.

2. Fire

No one wants to see their dreams go up in smoke.

Not only do you need to identify fire risks within your business, such as electric radiators, but you should install fire extinguishers and smoke alarms.

Speak to an experienced broker about appropriate insurance and backup all your business documents and files off-site.

If you have a computer that has your records on it and they’re not backed up properly, then you’re risking interruption to your ‘from home’ business that you can’t easily deal with” says Clark.

3. Public liability

Let’s say someone strolls into your store and trips over something you’ve accidentally left on the floor, injuring themselves badly in the process.

“She’s on a big income so she sues you for $200,000. What do you do then? You’d need Public Liability insurance” says Clark. “All those exposures should be fleshed out when you talk to a broker, and an appropriate insurance solution found.

4. Business interruption insurance

Whether it’s a roof-raising storm, a wall-shattering earthquake or a car through your shop window, it’s important to help protect your business against things that can suddenly and unpredictably bring your income stream to a halt.

“If you’re an owner/operator or a single tradie, how would you pay your expenses – the rent, the wages, the electricity – without an income?” he asks. “That’s why you need Business Interruption Insurance.

5. Ask an expert

While you can always take steps to mitigate against worst case scenarios, the fundamental risk mitigation strategy is to have an expert review your insurance and ensure it is appropriate.

“That helps transfer the risk from you to the insurance company” Clark says “and underscores the importance of seeking the advice of an experienced broker

If you’re ready to make the move to a shop of your own, consult your local Steadfast broker to ensure you’re covered.

Important note – the information provided here is general advice only and has been prepared without taking in account your objectives, financial situation or needs.

What insurance terms mean

A lack of understanding around what insurance jargon refers to could cost you dearly. Here are some industry terms and concepts you should be clear about before signing anything.

Insurance is a contract (i.e. a legally enforceable agreement) between two or more parties. It typically involves an individual or business paying premiums to transfer specific risks to an insurer. If something does go wrong, the insurer then has to pay for, say, a burnt-down shop to be rebuilt.

So far, so simple. However, as is the case with most contracts, insurance policies are complicated. To understand how they work you should, at a minimum, get familiar with the following.

Key insurance terms

Product disclosure statement: In certain types of insurance, such as home and motor, your insurer needs to provide you with a product disclosure statement. As well as the insurer’s contact details, this sets out the significant benefits, cost, terms and conditions, cooling-off period and dispute-resolution process relating to the policy they are offering.

Duty of Disclosure: When you take out an insurance policy, renew a policy or vary it, you have a duty to disclose to the insurer every matter that you either know or a reasonable person in the circumstances could be expected to know are relevant to the insurer whether to accept the risk and if yes, on what terms. You can’t, for example, be diagnosed with a terminal illness and then apply for a life insurance policy while keeping the diagnosis secret.

Agreed value/Market value: Let’s say you purchase a motor vehicle, costing $20,000 for your business. You’ll have the option of insuring the vehicle for either agreed or market value. Agreed value means you and the insurer agree to a set sum (for example, $20,000) being paid out in the event of a successful claim.

Market value means the insurer will only pay out what they would currently be worth in the market. If the vehicle is stolen three years after being purchased, the pay-out might only be $16,000.

Excess (also known as deductible): To discourage claims, especially for minor losses, and to reduce premiums insurers use a carrot (no-claim bonuses) and a stick (an excess). In the above example, the insurer might insist on an excess of $500 on the vehicle. That way, if the vehicle is damaged, the business owner out of their own pocket pays for the first $500 of the cost of repairs. Policies with larger excess are cheaper. That’s because you’re less likely to make a claim and will get a relatively lower pay-out when you do.

Compulsory insurance: While businesses often have the choice to insure against risks or take their chances, some insurance policies are legally required. For example, workers’ compensation insurance is compulsory for any business owner who has employees. Likewise, professional liability is compulsory for professionals in many occupations.

Exclusion: This is a clause in the policy which sets out the circumstances in which an insurer will not be liable for a claim under the policy. For example, a motor vehicle policy may exclude cover for the theft of a vehicle if the keys were left in the ignition. Failing to be aware of exclusions in an insurance policy is a common and often costly mistake.

Period of cover: The period for which an insurer agrees to cover you, usually a year.

Waiting period: Some types of insurance, such as income protection, require the individual making a claim to support themselves for a period of time (until a lump-sum payment is made or recurring monthly payments start). If money is tight, you can lower premiums by agreeing to a longer waiting period.

Benefit period: This refers to the period of time in an income protection policy in which an insurer will pay out if you suffer a loss covered by the policy. For example, some income protection policies pay out for one year, others until retirement age. Again, a cost-benefit trade-off needs to be made; the longer the benefit period, the more expensive the policy will be.

General Insurance Code of Practice: People often worry an insurer will take their money but try to wriggle out of providing a pay-out if they make a claim. However, insurers must abide both by the law and a code of practice developed by the Insurance Council of Australia. If you have issues with an insurer (or are worried you might), you should read the code.

“Australia is one of the world’s most underinsured first-world nations. Australian SMEs owners don’t appear to be any less blasé than their non-business-owning compatriots.”

Underinsurance: This can refer to one of two things:

  1. Having no insurance at all. Most businesses do not take business interruption insurance, meaning that they cannot claim economic losses when the business has to close down for some reason.
  2. A policy that doesn’t cover the value of what is being insured. For example, if you insure a building and the replacement cost of the building is $2 million but you only insure for $1 million, if the building is burnt down, you can only recover $1 million. If the building is damaged but can be repaired for less than $1 million, the insurer may be able to reduce any payment to reflect the underinsurance. This is to encourage you to insure for full value and pay the right premium.

Australia is one of the world’s most underinsured first-world nations. Australian SMEs owners don’t appear to be any less blasé than their non-business-owning compatriots.

Still feeling confused?

Fortunately, it’s possible to outsource the task of checking whether your policies offer either agreed or market value or have any unreasonable exclusions to an insurance broker (i.e. an intermediary, who acts on behalf of you in applying for insurance).

If you need expert advice on whether your policies are providing the cover your business needs at a fair price, contact us and we will be happy to speak with you.

A Business Saviour – Business Interruption Insurance

Businesses close their doors for many reasons, sometimes for a short time, often for good.

When faced with fire or storm damage or any insurable event that stops a business from trading, the owner is back in control if they know the likely claims outcome; what the policy covers; how much the policy will pay and when it will be paid.

A Business Interruption (BI) Policy tells the business owner up-front.

Insurance brokers take the time to understand the client’s business, its risks and exposures and then combine know-how, experience and market conditions to deliver a policy to suit the needs of the owner and his or her business.

This means no confusion and no uncertainty at claim time. The business owner knows up-front exactly how much the policy pays and when it will be paid.

If you’ve had a BI policy for a few years, it needs updating. If you don’t have one at all, you should consider the protection of a Business Interruption Policy. It’s the inexpensive way to protect your business income, the lifestyle of you and your family; and employment continuity for valued employees.

Valuables and Collectibles insurance. Valuation updates now due?

When was the last time you had your jewellery valued? And what about that fine art collection in your home or office boardroom? Whether you have the odd piece or a truckload, chances are your precious items are worth a lot more than you think.

Fine art is not just limited to paintings and works on paper. All manner of Collectibles fall under this heading, including sculptures, porcelain, jade, photographs, tapestries, sports and other memorabilia, vintage clothing, antiquarian books and manuscripts, antiques, stamps, coins, vintage clocks, finely crafted musical instruments and wine.

Like any other item of value, it’s important that your Collectibles are properly covered in case of theft, fire or other misfortune. Although no amount of money may replace your prized collection, it can help you to rebuild it. First and foremost, insuring your collection involves talking to your broker. Find out whether or not your precious items are covered under your current policy and if not, how best to get proper cover.

You’ll need the services of a professional valuer to assess and confirm a true value but their fee will prove to be negligible in the event of an insurable event further down the track, especially if your collection is of significant value. A written appraisal will prove the worth of your valuables.

Your policy may require you to photograph and/or video your entire collection but do it anyway, it will make a future claim an easy process. If possible, make sure that the date stamp is imprinted on the photo(s) or displayed on the video. This will help to prove the authenticity of the images if necessary in the future. Include images of yourself wearing the jewellery or show an art piece in-situ in your home or office

As a final step to documenting your collection, take a written inventory of each piece, including a detailed description. Once you have all of the necessary paperwork and information gathered store the appraisal, your insurance policy and any written, photographed or video documentation relating to your collection in a safe place easily accessible by you, your family or associates.

While the documenting process may seem like a lot of work now, it will prove to be worthwhile if an event results in the loss of your collection. You may never need to make a claim but the process will provide you with great peace of mind just knowing that it is there.

Insurance and contractors: have you got it covered?

Hiring a contractor or sub-contractor is often appealing to time-poor, cash-strapped small business owners. One big reason is that they take care of their own insurance (as opposed to the business owner having to provide coverage for them, as is the case with employees). But what if things aren’t quite that straightforward?  

Imagine the following scenario. You hire a plumber to fix a leak at your workplace. He solders a pipe and your building catches fire. What was a $200 job results in $1 million in damage. You go after the plumber only to discover he doesn’t have the right (or any) insurance or assets you can get your hands on. If you have the right property insurance you may receive a pay-out. But what if it only covers you up to $500,000? Chances are you’ll be left with a shortfall and that could sink your business.

“It’s crucial for small businesses to check that contractors and sub-contractors have their own insurance in place. You should request a copy [of the policy]”, says John Clark, Steadfast Broker Support Manager.

What policy? Well, that depends on the job but a humble suburban tradesman will often have contract works, public and products liability, professional indemnity and workers’ compensation insurance. Err on the side of caution when checking that any contractors or sub-contractors you use show you all the relevant policies to provide proof, so you are unlikely to be left on the hook if they, or one of their team, starts a fire or falls over and breaks a leg.

” It’s crucial for small businesses to check that contractors and sub-contractors have their own insurance in place. “

Employee or sub-contractor?

It’s a question that causes confusion but one that business owners need to be clear about to avoid insurance issues in a worse-case scenario.

In theory, an employee works in the business while sub-contractors run their own business and supply a service. For example, the wait staff at a restaurant are likely to be employees while the person who cleans it (and provides similar cleaning services to other restaurants) is likely to be a contractor or sub-contractor.

In practice, the lines can blur. For example, a person can be a contractor for tax purposes but still be deemed an employee when it comes to workers’ compensation insurance. If someone a business owner thinks is a sub-contractor can be classified as an employee (under any circumstances), that business owner has a lot more liability than they realise, should anything go wrong.

Each state and territory has its own rules around the demarcations between employees and contractors/sub-contractors for workers’ compensation, so checking the relevant websites is a good place to start. Then seek legal advice if you’re worried you might have an employee on your hands rather than a contractor or subcontractor.

Workers’ compensation and public liability

Workers’ compensation insurance is compulsory for all employers in Australia to protect employees if they suffer a work-related injury or illness. The same goes for sub-contractors who hire workers to help with a job. “If you employ people, get advice as to your workers’ comp obligations in your state or territory,” says Clark.

So, what should you look out for?

As with most things business – related, it’s always best to get it in writing. That is, have any contractors or sub-contractors you use sign a contract before they step foot on the premises. Contracts need to be properly drafted and spell out the chain of liability, to give both parties legal protection. All parties – employers, contractors and sub-contractors – should pay special attention to indemnity clauses that can shift all liability for death, injury or loss onto them.

“People often rush in and sign a contract without looking at it carefully. If you go on to make a claim your insurance might not cover you because you signed something you shouldn’t have,” says Clark.

One common but important exclusion is contractual liability. This can exclude insurance cover if you sign a contract that reduces your rights to less than they normally would be at common law (for example, if you agree in a contract not to sue a contractor for their own negligence).

If you’re an employer or sub-contractor who wants some expert guidance about insurance matters, talk to a Steadfast insurance broker today.