Everything you need to know about ensuring your business
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.
But 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.
Five reasons why your business needs insurance
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.
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.
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.
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).
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.
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.
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.
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.