Bring in the experts

For individuals, buying insurance is fairly straightforward: insurable risks are few and the variables used to calculate premiums finite. Two in three individuals buy policies directly from insurers, IBISWorld says.

However, for small and medium-enterprise owners, buying insurance is far from straightforward. The risks are many and the variables used to calculate premiums are many. Insurers sell nine in 10 business insurance policies through a broker, IBISWorld estimates.

“Some companies might need to have 30 or 40 different types of insurance, depending upon their profile,” says Peter Docherty, general manager, public practice, at CPA Australia. “That is why a lot of smaller businesses would go to a broker – to help them understand their risks.”

Even SME owners who do understand the risks are unlikely to know which risks are insurable, who covers them, and which insurers are offering the best deals of the day.

Insurers warn of the danger of SME owners misunderstanding the fine print of their policies. “I would always deal through an insurance broker,” says Keith Till, national broker manager at insurer Zurich Financial Services Australia, the country’s fifth-biggest insurer by revenue.

He says that many SMEs wrongly think that “insurance is easy; I can organise it myself”. “Inevitably, they fall into some sort of trap in not understanding what the wording is with a direct insurer,” he says.

“The broker will guide them through the process and, most importantly, when a claim occurs, the broker is there to help them understand what their rights are, what they are covered for, and to make sure their claim is paid speedily.”

Consider the example of a Melbourne beauty salon. The owner was sued by a customer whose skin reacted badly to a treatment, Business Victoria says. The owner thought it would be covered by a product-liability policy. However, the insurance company representatives said they “weren’t notified of the risk” beforehand. “A competent broker would have added a clause to cover adverse skin reactions when they prepared the policy,” Business Victoria says.

It is difficult for an SME owner to find out whether a broker is competent. Membership of the National Insurance Brokers Association, references, and the number of insurers they have access to are common indicators, experts say (see ‘When choosing a broker, ask’, below).

SMEs should also understand how their broker is paid. Brokers usually receive a commission from insurers for each policy they write. Some also charge a fee for additional advice. Either way, if brokers hold an Australian Financial Services licence, they are obliged by law to put the interests of the client ahead of the insurer’s interests.

In any case, intense competition and a trend towards packaging policies means insurers are on the back foot in pricing and coverage, a review by the broker Marsh Australia said. For businesses with turnover of up to $100 million a year, the cost of insurance has fallen from $9.38 for every $1000 of revenue in 2007-08, to $8.61 in 2009-10, a benchmarking survey by the reinsurer Aon shows.

The average annual premium for Zurich SME customers is between $1500 and $2000, Till says. This premium buys cover for the risks that SMEs are usually aware of – such as damage to property and other assets, as well as public and product liability – and which are included in most small-business insurance packages. The premium also covers risks that are often missed, such as professional indemnity and business interruption.

“For example,” Till says, “if you’ve got a business in a shopping centre, and the biggest attraction, say a big supermarket, has a fire; until the Woolworths or Coles is repaired, the number of people coming to that shopping centre is going to drop dramatically, as will your income. Our policy will pick that up under a business interruption section.

“Insurance is a grudge purchase, there are no two ways about it. But it does give you peace of mind,” he says.

BRW

Comments (0)