Buying insurance for your business can be one of the more challenging tasks when starting up or running a business. Often, it is choice between perceived risk versus commercial reality – sometimes you just don’t have a choice but to buy insurance, even if you think you’re not at risk.
What makes it even harder is that there does not appear to be a readily available resource on insurance for business by business. So we thought we’d put this simple 5-point guide to insurance for business covering the following aspects for your convenience:
1. Why insure
2. What to insure
3. When to insure
4. How to get insurance
5. Types of insurance
So let’s get started!
1. Why insure?
Where guessing that if you’re reading this you’re also running your own business. We’re also guessing that you’re passionate about what you do, now that your dream is a reality. You’ve put a lot of hard work in to your business, made sacrifices, taken risks to get where you are. So why risk throwing it all away?
In essence insurance helps you ‘shift’ this risk on to somebody else – an insurance company. The insurance company takes your premiums and puts it into a pool along with people that have similar risks – in theory, the bigger this pool is, the larger the number of losses that can be covered.
So for example, you have an ice-cream truck. You drive for miles and miles and in turn, the repetitive music drives you miles and miles! You’ve spent about $85,000 getting your truck kitted out with stainless steel on the inside and hot pink on the outside (if anyone can tell us why hot pink is popular please email!). You probably don’t have another $85,000 in spare cash lying around so you decide to get insured. You ring “Mythical Insurance Company Pty Ltd” about getting motor insurance for your business and as it happens, Mythical is a specialist in ice-cream trucks and insurers over 5,000 ice-cream trucks. So they quote you a standard premium of $2,500.
You then call “Realistic Insurance Company” and they hang-up the phone thinking it was a hoax. You try again and this time they quote you a premium of $15,000. Of course, because Mythical is collecting $2,500 from 5,000 customers and because not every customer will make a claim then they can probably absorb a greater number of losses and therefore not charge you as much premium as say Realistic. Sure, this is a very simple and made-up example but we’re just trying to illustrate the general principle.
So, in this example you end up buying motor insurance for your business’s most important asset. If you are unfortunate and cause an accident, well it won’t be money out of your pocket and you will be able to breathe a sigh of relief because the insurance company will take care of it.
Of course, protecting the things that you own and use isn’t the only reason for insurance. The law or indeed, your customers might also require you to buy a certain type of insurance, for example workers compensation, public liability or professional liability (indemnity) in order to conduct business. In most instances, they will also tell you what level of cover you need. If you’re unsure of whether you need insurance, you should seek professional advice from an insurance broker for example or an insurance company. The government or your industry association may also be able to assist you.
2. What to insure
Almost every business will have property of some kind or another worth insuring. It could be as simple as the TV in your reception area, that ergonomic chair doing your back a favour, your laptop or indeed the vehicle that you use to go and see your clients. Look around you, what do you see? Of everything that you can see, what are the things that would add an avoidable financial cost to your bottom line? You don’t really want to replace your shiny new laptop do you?
Is it really worth buying that spare machine at auction, spending a couple of hundred bucks to refurbish in order to keep it as a spare in case the one in the shop breaks down? There’s insurance for that and it can even cover all of your machinery – usually at only a small fraction of what it would cost to replace.
However, as we mentioned earlier you might also need to insure your liability: to your employees if they suffer an accident for example, to the public if they slip or fall on your premises or to your customers when providing them with advice for example. Again, you should consult with a professional if you’re unsure. You can also use our estimator as a starting point to jog your memory and record what property you have but this won’t take your financial objectives into account.
Chances are, there’s probably an insurance product available for your every risk (except maybe polar expeditions!) – see our section below on types of insurance for some examples.
3. When to insure
As we mentioned before often it can be a pre-condition of trade that you purchase insurance – for example before market day if you’re a stall-holder or before allowing employees onto the factory floor. It can also be a reflection of your risk tolerance – is your mobile phone insured? What about your computer with all of your customers billing and contact details?
It pays to sit down and assess what your requirements are and there’s plenty of professionals out there willing to help (usually for a small fee!). Insurance may be a cheaper option than buying spare machinery or hoping that your car survives a hailstorm unscathed so it can also make sense when you’re trying to make your money work harder for you.
It can also help in your marketing campaign – for example if you’re a building company and need to guarantee your work. If your competitors are insured and you aren’t which builder would a customer choose?
4. How to get insurance
You can get insurance any time of year – sometimes even on weekends, depending on the type of insurance that you are after! Of course, it helps if you know what type of insurance you need.
Assuming that you know what type or types of insurance you need for your business, there’s a handful of ways to get insurance:
1.Through an insurance broker
2.Directly with an insurance company
3.Through a bank
For business or ‘commercial’ insurance, getting insurance through a broker is perhaps the most widely used. This is because they can advise you of what type of insurance to get and when to get it, and because its their business to be able to access a wide variety of options. Although, as we have previously reported variety may just come in the form of a different logo or corporate identity. So you should ask your broker to explain clearly what the differences are between different products.
It so happens that by law an insurance broker cannot advise you to purchase an insurance product if it does not cover your needs. In addition, a broker can help ease the burden of dealing directly with a large insurance company if you do have a claim – particularly if the insurance company intends to deny your claim!
Getting insurance directly with an insurance company or through a bank is generally the same process – speak to a ‘sales representative’ in their call centre, let them walk you through the cover and in some instances even get some (relatively) impartial advice. Of course, going direct means that you potentially save the 10% -15% commission that the insurer will pay the broker.
Getting a business insurance quote online is relatively difficult, as insurance companies in Australia simply do not provide many options. In most instances, online quotes are provided by insurance brokers or other distributors acting as agents of the insurance company. For example, Newsagents can be covered through a broker in Queensland who distributes business insurance on his website on behalf of an insurance company. In this instance, the broker still receives commission without the obligatory advice. So in short, a direct online business insurance company does not exist in Australia.
5. Types of insurance
There are many different types of insurance depending on your needs. Here are some of the more popular types of business insurance – note that some insurance companies also offer these as a ‘package’:
|Protection against third parties suing you as a result of your negligence causing personal injury or property damage whilst on your property.
|Fire and perils
|Covers your building and/or contents against specific perils such as fire, storm, lightning, malicious and sometimes accidental cover.
|Compulsory insurance covering claims from the death, injury or illness of employees.
|Protection for injury to third parties, with options to cover third party property damage and own damage from the use of your vehicle.
|Cover for losses due to the burning out of electric motors or boilers used in your business.
|Protection if you get sued as a result of financial loss due to errors or omissions following your advice. You may also need to continue buying (limited) protection after you retire – e.g. architects, designers or health workers.
|Covers the costs of responding to an ATO audit – for example the cost of engaging your accountant to prepare information.
Article by Vincent Moran, independent insurance specialist and chief blogger @ www.mybiz247.com.au – a free resource on insurance for business in Australia.