SMEs’ cheaper insurance… $10 more for low-paid… Six ways to avoid another Bridgecorp… Do more for your Government… More accessible tenders promised… G9 to throw hat into ring… Economy roundup… More…

SMEs win insurance premium cuts

Insurers competing for the profitable commercial insurance market have cut premiums paid by some SMEs by as much as 10% in 2007.

The intense competition has also encouraged insurance companies to relax risk guidelines and offer bigger prospective payouts to win more business, says Aaron Stephenson, the managing director of Rural and General Insurance Brokers.

He says competition is fierce because of new underwriting agencies – specialised offshoots of larger insurance companies – entering the SME market. “At a recent exhibition there were about 40 agencies present. In rough terms that’s probably in increase of 15–20% on last year, so it is quite significant.”

Negligence law reforms and a relatively quiet couple of years in terms of natural disasters – recent flooding in NSW and Victoria excepted – has seen high levels of profitability of the insurance industry, with much of that increase coming from insurance, according to Deloitte and JP Morgan’s 2006 General Insurance Industry Survey.

The survey found SME premium reductions are generally slightly lower than those for big business, but Stephenson says the trend has gone the other way more recently.

“SME premiums have softened a bit more, in my opinion. We’ve seen AAMI start up a their small business department in recent months and GIO and NRMA are running very aggressive advertising campaigns in the segment on frequent basis, so there is a lot of competition for SME business at the moment,” he says.

The lesson: if you’re not happy with your premiums, start shopping around for a better deal.

– Mike Preston

Left behind Down Under

Australia’s online connectivity and internet usage is trailing comparable countries by at least two years. New research from Nielsen/NetRatings shows that the low internet bandwidth is a major culprit, with Australians spending less time on the internet, well behind the US, France, Korea and Brazil.

The research found that Australian home user connection speeds are 21–43% of the speeds in comparable developed countries.

Ross Dawson, founding chairman of Future Exploration Network, says the average bandwidth of Australian broadband is around a third that of the UK and a fifth that of the US.

“When you go to access video and audio it is so slow and clunky many people give up, so people spend less time on sites,” he says. The average time on an internet site in Australia is just under a minute.

Cultural issues also affecting Australians’ online usage. “We are less inclined to put forward an opinion in a social environment,” he says. “This means that we are slower in participating on blogs, forums and social networking sites.”

Dawson says the takeup of Web 2.0 by businesses is also trailing other countries, which is affecting productivity and marketing. “In the US in companies like Disney and McDonald’s use less email and do far more collaboration on projects, which contributes to better outcomes.”

Australians are also slower to use blogging platforms and other Web 2.0 for marketing. “Organisations need to be far more innovative in how they use technologies internally and externally because as we shift to the global network economy we must be connected to other ideas and knowledge or we will be disadvantaged as a nation.”

The research also found:

• Growth in use of YouTube by Australians jumped a massive 2395, with 20.6% of online Australians assessing it every month. However again we trail: 30.2% of Americans and 25.5% of British access YouTube
• In 2006 the growth in international content viewed by Australian Internet users increased 45% compared to 21% growth in domestic content. This has been driven by the huge number of Australians going to US social media sites at the expense of domestic sites.

– Amanda Gome

G9 will throw its hat into the ring

The G9 consortium of telecommunications companies in competition with Telstra has confirmed it will lodge a tender with the Federal Government to build a national high speed broadband network.

G9 plans to make submissions to the expert panel established by the Government on how it should assess tenders to build the broadband network as well as submitting its own tender, The Australian Financial Review reports.

– Mike Preston

$10 more for low-paid

Australia’s minimum wage regulator has delivered a $10.26 weekly pay rise to about 850,000 employees on the federal minimum wage or related pay scales that pay up to $700 per week.

About 350,000 workers on minimum wage-linked pay scales who earn more than $700 a week have received a smaller pay rise of $5.30 per week.

The decision will be seen as a win for business groups such as the Australian Chamber of Commerce and Industry and the Australian Industry group, which lobbied the Australian Fair Pay Commission to award a $10 per week increase. By contrast, the Australian Council of Trade Unions argued for $28 more for the lowest-paid.

But ACCI’s director of workplace policy, Peter Anderson, says that adding today’s rise to the $27.36 awarded in December, means Australian business will be paying an extra $625 million a year in wages and on-costs.

“While we welcome the moderate nature of today’s increase, we remain concerned that the Fair Pay Commission has awarded another pay increase when the ink is barely dry on the last increase,” Anderson says.

The December 2006 pay rise awarded by the AFPC was the only minimum wage rise delivered that year and came 18 months after the previous wage decision by its predecessor the Australian Industrial Relations Commission.

– Mike Preston

Six ways to avoid another Bridgecorp

The collapse of Bridgecorp leaves investors, many of them New Zealanders, facing losses of $450 million and pushes the cumulative bill for failures in this construction finance sector over the past 18 months well above $1 billion.

The first three failures – Westpoint, Fincorp and Australian Capital Reserve – were little known. However, with Bridgecorp more cautious investors even had access to research that supported it as an investment option.

So how do investors understand these investments and protect themselves from the increasingly obvious downside: the loss of large portions, perhaps all, of their investment capital?

1: Beware of ASIC scrutiny. ASIC had been involved with Fincorp, Australian Capital Reserve, Westpoint and Bridgecorp prior to their collapses. Where ASIC has to step in and have an involvement with an investment provider, it is because there are often real problems.

2: Accept that risk and reward are related. The only reason Bridgecorp was offering returns of more than 9% was because no one lent them money at 7%, 8% or 9%. Why? Because those lenders knew they were simply too big a risk.

3: Accept that property construction is a risky process. Property construction, with capitalised interest and lending against “property valuations as per completion” is clearly a very speculative business. There are risks associated with construction and then with the sale of the business.

4: Beware of aggressively advertised investment opportunities. When investment schemes are aggressively advertised to retail investors (“mum and dad” investors), the financier may have failed to persuade institutional investors to take up the investment opportunity.

5: Do you need exposure to property construction in your portfolio at all? Perhaps this should be the first point. We have more than 100 years of evidence of how the Australian stockmarket and traditional fixed interest markets provide reasonable returns to investors.

6: Diversification is a powerful friend. Diversification across (and within) asset classes is a powerful ally in reducing the damage from any failed investment.

– Scott Francis. A longer version of this story first appeared in the Eureka Report

Oh goodie… let me do more for my Government

Not got enough to do for the Government this month? Well employers don’t need to worry. As we reported yesterday, they have the new fact sheet on workplace law changes to hand out. The Government has says it will take a lenient approach to employers who say they did not know about their obligations and will seek “voluntary compliance” before taking legal action.

Odd, because it is difficult to be lenient when holding a huge stick over the head of employers. If in the next three months, employers have not distributed the sheet that outlines basic rights and protected conditions under the new Fairness Test, they will be slapped with fines of $110 per employee.

– Amanda Gome

Government work should be more accessible to SMEs: Labor

A federal Labor Government would introduce reforms to make it easier for SMEs to bid for Federal Government tenders worth $26 billion each year, Opposition Leader Kevin Rudd says.

Rudd promised to help SMEs access the work by simplifying Federal Government tender contracts and reducing commercial risk for business performing low-value government contracts, in a speech to the Council of Small Businesses of Australia on Tuesday.

If elected Labor will conduct an audit of Government procurement practices to find ways of simplifying tender contracts and reducing the use of onerous risk-transfer clauses in contracts valued at $1 million or less.

Labor Small Business spokesman Craig Emerson says the effect of government contracts using unlimited liability clauses and other onerous terms is that SMEs will often not bid for low-value tenders.

“The consequence of including onerous terms where they are not needed, is higher costs in contract performance on business and a greater threat of unbearable liability for SMEs,” Emerson says.

The commitment was welcomed by the Association of Consulting Engineers Australia as a positive first step.

The association’s chief executive, Megan Motto, says: “Mr Rudd has recognised that many small businesses are unable to contract with governments because of the proliferation of onerous contract terms that seek to shift unmanageable levels of risk to the private sector.”

COSBOA chief executive Tony Steven also backed the Labor commitment. “It definitely is a good thing; tender paperwork and these insurance issues have been a barrier for SME participation and if more SMEs are able to tender this work that will increase competition which in the end will be a good thing for taxpayers as well.”

– Mike Preston

Economy roundup

The employment market may have softened slightly in June, according to the Seek employment index released today.

It shows that while the number of online job ads posted increased by 2.2%, this was outweighed by a 4.6% increase in online job applications in June.

The S&P/ASX 200 is up 0.6% to 6338.2 at 12.23 pm and the Australian dollar is still well above the US85¢ mark at US85.73¢, albeit down slightly on yesterday’s US85.76¢ Sydney close.

– Mike Preston