A huge amount of time, effort and capital goes into setting up a successful business. With careful planning and hard work, you have every reason to hope your business will grow and thrive without any complications.
2020 is very young but has already brought great challenges for all business. From sole traders to larger corporate organisations everyone has had to change and adapt given the new risks every business had had to face.
On top of all of that, disaster can strike at any time, through no fault of your own. Fire, flood, theft – a single event could bring your business crashing to its knees. And it’s not just physical risks you need to think about: cyber-attacks, negligence claims, loss of crucial personnel – these are all major threats that can bring down even the most successful business.
Thankfully, you can protect against all of these risks, and many others. We’ve created this handy guide to give you an overview of all the main types of business insurance, and some tips on how to choose the right insurance cover for your business.
Alright, let’s get started.
- Why risk it?
- You might have to.
- What about your customers?
- Think about your staff.
- Protect yourself.
- What type of business insurance do I need?
- What are my business risks?
- How do I conduct a risk assessment?
- Public Liability Insurance
- Product Liability Insurance
- Professional Indemnity Insurance
- Crisis Management Insurance
- Business Property or Asset Protection
- Business Continuity Insurance
- Management Liability Insurance/Directors and Officers Liability Insurance
- Business Express Insurance
- Key Person Insurance
- Cyber Insurance
- Speak to someone you trust
- Look at the details
- Look for something that suits you
- Speak to a broker
Chapter 1. Five reasons why your business needs insurance
1. Why risk it?
There are several important reasons to take out insurance for your business, starting with the most obvious: prudence. Without it, you could risk losing everything you’ve worked for.
2. You might have to.
Aside from the need to protect all your hard work, you may find that you simply can’t operate without business insurance.
Depending on the nature of your business you may be required to have public liability or professional indemnity insurance in place in order to acquire an operating licence or gain membership of the professional associations that regulate your industry – accountants, for example, need to maintain a minimum level of professional indemnity cover to qualify for membership of their professional body, Chartered Accountants Australia and New Zealand.
3. What about your customers?
What’s more, some customers or suppliers – especially if you work with any government agencies – may not be willing to do business with you unless you can show evidence of insurance.
After all, if something goes wrong that means you can’t deliver on your contract or are unable to pay for their services, their businesses could be at risk too.
Business insurance doesn’t just protect you – it’s for the benefit of everyone who chooses to work with you.
4. Think about your staff.
If you have employees, they are relying on you for their livelihoods – so if your business fails, they too will suffer the consequences.
You want to attract great people to work with you, and you may need to show that your business is adequately insured before they’re willing to sign up as part of your team.
(Note that this is separate from your legal obligation to have Workers’ Compensation arrangements in place in case anyone is injured at work).
5. Protect yourself.
It’s not just your business that could be at risk if something goes wrong. If you’ve used personal assets like your home to secure business finance, you could lose them too if the business fails.
Chapter 2. What, why and how?
What type of business insurance do I need?
There are many different types of business insurance available, and every business is unique, so there’s no standard answer to that question.
How much and which types of insurance your business needs will depend on many factors, such as the type of work you do, and whether you:
Own property or other business assets, and if so their value and location
- Work out of your own premises, in public spaces or on customers’ property
- Deliver services or manufacture products
- Provide professional advice
- Have employees, and if so how large your team is
- Store or transport stock, and if so the quantity, type and value.
Common business risks
Here are some of the most common risks faced by Australian businesses:
- Natural catastrophe, such as fire, flood or storm damage
- Cybercrime or IT failure, leading to the loss or leaking of sensitive data or a breach of customers’ privacy
- Negligence claims
- Theft, fraud or vandalism
- Physical accidents on your premises or caused by your products or actions
Of course, some of these threats may not apply to your business – and insurance premiums can quickly chew up your profits. That’s why objective risk assessment is the key to deciding which policies to take out.
How to conduct your risk assessment
The first step is to sit down and think about all the things that could go wrong with your business, and grade them by how likely they are to happen.
The chances are you’ll find that some threats are so unlikely they just aren’t worth considering, while others are so high-risk that you simply can’t afford to ignore them.
The second part of the process is to evaluate the consequences of each threat.
Try to put a monetary value on them so you can decide which ones you could easily survive (such as the theft of some stock or the breakdown of an office computer), and which ones could bankrupt you (say if someone were badly injured on your premises).
A simple risk matrix can help you decide which risks are the greatest concern for your business, and which ones you might prefer to self-insure.
If you’re unfamiliar with the assessment process, or are in any doubt about the risks your business could face, seek professional advice from your accountant or financial advisor.
Chapter 3. Business insurance overview
Here’s a useful overview of the most common types of business insurance, with an explanation of how they can help to protect your business.
Public Liability (PL) Insurance
Public liability insurance is vital for any business that comes into direct contact with customers or members of the public, either on their own premises, in public spaces or on customers’ property. It’s crucial because if any type of accident were to take place as a result of your activities, the consequences could be disastrous.
If someone gets hurt, they could sue your business for their medical costs and compensation. The damages could run into the millions if they are left permanently injured or unable to work.
PL insurance also protects you against the less catastrophic, but more likely, risk of property damage – for example, the cost of repair or replacement if one of your employees should break something while working in a customers’ house.
Many types of businesses, such as cafes or restaurants, simply can’t operate without PL insurance – it’s a fundamental requirement of getting an operating or trading licences.
Product Liability Insurance
Product liability Insurance is similar to public liability insurance.
It exists for businesses that manufacture or sell physical products, to protect you if one of your products were to fail and cause harm to a customer, a member of the public, or another business.
You could face very substantial compensation claims if one someone suffers, either physically or financially, as a result of using one of your products – and the impact on your business (not to mention your reputation) could be massive, especially if you sell in high volume.
In addition to damages claims, you could face the prohibitive costs of a product recall.
Professional Indemnity (PI) Insurance
Professional indemnity insurance is a must for any business that delivers professional services or advice. Under Australian law clients have a right to claim compensation if they suffer a financial loss because of the actions you take, or advice you provide as a qualified professional.
Anyone from alternative health practitioners to website designers could be at risk of a professional negligence claim. A client only has to believe that you are responsible for their losses to file a claim against you, and it can often be hard to prove the impact your advice or services may have had.
Merely defending a claim – however unjustified – could cost you thousands of dollars.
PI insurance can protect you against some other significant threats too, such as cyber-attacks: you have a duty under the Australian Privacy Act to protect your clients’ personal data. Should that data be leaked because of a breach in your IT security system, you could face substantial compensation claims.
Even simple errors could have severe and expensive consequences, such as accidentally emailing a confidential file to the wrong client.
Crisis Management Insurance
In today’s online world, word spreads very fast when something goes wrong.
One of the most serious consequences of a crisis like a negligence claim, service failure or security breach could be critical damage to your reputation.
Crisis management insurance usually covers a strictly defined set of circumstances, and provides short term cover for the costs of getting your business back on track – for example, hiring a communications or public relationship professional to advise you on rebuilding consumer confidence in your business, or an IT firm to rebuild your cybersecurity systems.
Business Property or Asset Protection
If your business owns property, equipment, vehicles or stock that you couldn’t afford to replace easily, asset protection is crucial.
Each policy varies and it may be difficult to get cover for specific risks (flood or sea damage, for example) depending on your location.
Most policies will cover against major threats such as theft, vandalism, fire or storm damage. Some will also cover stock in transit, which may be crucial if you have a complex distribution system.
Business Continuity Insurance
There are many reasons why you may have to temporarily stop your business operations – such as equipment breakdown, fire or storm damage, IT failure or even something like an external power outage.
Even a day’s interruption could have severe consequences, especially if you work to tight delivery deadlines – and you’ll still have to pay all your expenses, from loan repayments to salaries, while your business is sitting idle.
Business continuity insurance covers you for financial losses you experience as a result of business interruption, and is a valuable companion to property or asset protection.
As with property insurance, some causes of business interruption, such as flooding, may not be covered in high-risk areas.
Management Liability Insurance / Directors and Officers (D&O) Liability Insurance
Under Australian law there are circumstances where the actions of a business become the personal responsibility of its managers or directors. Management has a legal duty to make sure the business and its funds are managed properly, and that it operates within the law.
A serious error in a tax return, embezzlement of customers’ funds by one of your employees, or a Work Health and Safety breach, for example, could lead to your management being personally sued for negligence.
Management insurance (for private companies) and D&O liability insurance (for public companies) protects them from the financial consequences, should you face a charge of financial or business mismanagement, or other major risks like a breach of privacy claim by a client, or a discrimination claim by an employee.
If you’re running a larger-scale operations and want to attract highly-skilled professionals to your management team, this type of insurance is policy is crucial to give them confidence and peace of mind.
Business Expenses Insurance
Business expenses cover is a type of life insurance policy. It works much like income protection insurance, covering your regular business expenses for a short period (generally up to six months) if you are unable to work because of injury or illness.
It can give you valuable protection if you’re a sole trader, or operate a small business that wouldn’t be able to generate income without you.
It can help you cover the cost of expenses like staff salaries, office rent or mortgage payments, car or equipment lease payments, utility bills, insurance premiums and even a temporary replacement to keep your business running while you recover.
Key Person Insurance
Key person cover is another life insurance product for businesses that depend on one or two people to keep operating.
If something happens to one of those people the loss of technical expertise, earning capacity or customer confidence could bring the business down before you could replace them.
Under key person insurance you’ll receive a lump sum payment that you can use to cover business expenses and salaries, keep up loan repayments and bring in support to help you keep the business afloat while your key person recovers, or you look for a replacement.
Insurance companies now offer Cyber Insurance to help protect you against cyber criminals and data loss.
It is It estimated cybercrime costs the Australian economy over $1 Billion every year. Businesses are targeted by many different types of attacks such as botnets, worms and denier of service attacks.
Symantec believe Australia is the 5th most target country in the world for cyber-attacks and ponemon estimate for every 1000 customer records exposed the total claim costs are roughly $144,00.00. Cyber Insurance will help protect you against any loss from a cyber-attack.
Chapter 4. Choosing your business insurance policy
Choosing your business insurance can seem like a daunting prospect. There are so many policies on offer, each with different terms and premiums. Here are some useful tips to help you if you’re not sure where to turn.
Get a recommendation from someone you trust, ideally someone with a similar business model to yours.
After all, low premiums are great, but it’s what happens if you need to make a claim that really matters – it’s vital that you get the support you need to get your business back up and running fast after a crisis.
Find out what sort of experiences people have had with different companies: Was the service good? Was the claims process easy? How long did it take?
Compare terms and conditions as well as premiums.
Each policy will have different benefits, limits and excess amounts, as well as a list of circumstances that are excluded from cover. Be sure you know exactly what you’re paying for before you commit, because the cheapest policy might not be the best fit for your business.
Special, tailored insurance policies exist for some professions, which can be more cost-effective than taking out separate policies for each type of risk.
For example, tradies insurance often includes public, product and professional liability, personal accident and vehicle and tool cover, in a single package.
If you’re running a complex business, or one that faces uncommon risks, you’ll probably need to seek out specialised insurance (for example, marine insurance if your business owns water craft).
If your core risks aren’t covered by standard types of insurance, contact a business insurance broker for a tailored insurance package to suit your specific needs.
For more information and guidance on how business insurance works, and how to find the right policy for your specific needs, check out the Understand Insurance website created by Australia’s insurance Peak Body, the Insurance Council of Australia.
If you need help assessing your risks, making sense of all the policies on offer, or choosing an insurer, you can always seek advice from an insurance broker. Get a quote here.