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As bushfires rage, most SMEs are underinsured

Adam Zuchetti
Adam Zuchetti
15 November 2019 2 minute readShare
NSW bushfire

Just as bushfires rage across multiple states and NSW faced “catastrophic” conditions, insurer QBE has suggested that many SMEs are underinsured should disaster strike.

The insurance giant polled 609 Australian SMEs in April this year as part of its report, SMEs and insurance: A pulse check on risk trends for business, which was released on Friday (15 November), just a week after bushfires ravaged parts of NSW and Queensland, killing at least four people.

According to the report, nine in 10 business owners agreed that the outcome of an insurance claim could put them out of business or at least cut revenue and hit cash flow. Yet 62 per cent confessed that they are unlikely to have the correct insurance in place to fully protect their business.

“It’s important to understand all the risks your business faces to ensure you’re protected should someone bring a compensation claim against you for an event connected with your business, even if that incident is not your fault,” said Aaron Gavin, general manager for SME at QBE Australia.

“This can include a customer being hurt on your business premises, a competitor claiming you stole their ideas or a customer claiming a breach of privacy.”

In the case of fire, Mr Gavin said that “if a fire goes through your business premises, it can take weeks to get back up and running, which means weeks of lost turnover if you don’t have business interruption cover”.

“We’ve seen plenty of examples where we were able to reinstate the property, and legal liability was covered, but because the business couldn’t continue trading and cash flow was impacted, it lost customers and ultimately went out of business,” he said.

The QBE report looked into liability claims data, and found that the most common claims are not necessarily the most expensive ones.

On a cost basis, the most expensive claims (in order) are:

  • injuries to labour hire personnel
  • injuries to third-party workers
  • electrocution
  • fire
  • defamation or slander
  • being trapped by machinery equipment
  • physical assault injuries
  • faulty products
  • slip and fall injuries
  • injuries resulting from being struck by an object

Meanwhile, the most commonly lodged claims (in order) are:

  • faulty workmanship
  • accidental damage to someone else’s property
  • water damage
  • impact or damage caused by a vehicle
  • slip, trip and fall incidents
  • excavation and drilling damage
  • injuries resulting from being struck by an object
  • lifting, carrying or putting down objects
  • faulty products
  • fire

How do SMEs cover the cost of unforeseen incidents?

According to QBE’s report, claims against an insurance policy are the primary go-to option for businesses grappling with an incident, damage or injury, accounting for just under half (42 per cent) of the solutions reported by those SMEs polled.

Yet almost one in five (18 per cent) admitted that they “don’t know” how they would cover such unexpected costs.

Meanwhile, 27 per cent said they would draw on savings, and 7 per cent would lump the costs onto a credit card.

Some 29 per cent said they would have to resort to borrowing funds, whether that be by way of a personal loan (13 per cent), a business loan (8 per cent) or borrowing money from relatives (8 per cent).

Sadly, 15 per cent said that they simply would not be able to finance the legal costs of such a situation.

“When your business grows, it’s vital to review your policy — factors like equipment upgrades, new premises and new employees can all mean your old insurance policy no longer fits your needs,” Mr Gavin said.

“It’s important to consult with your insurer or broker to keep a check on whether your insurance coverage is still appropriate as your business changes.”

As bushfires rage, most SMEs are underinsured
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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