“There are 10 towns that could be another Lismore in the next few years”: Insurance experts on how SMEs can protect their business

The government is spending 3% on mitigation and 97% on cleanup after natural disasters, according to Andrew Hall, chief executive of the Insurance Council of Australia. 

But that’s not the only sobering statistic Hall shared at a panel on how small businesses should approach insurance in uncertain times on Wednesday at the COSBOA National Small Business Summit in Sydney. 

The insurance industry has received more than 170,000 claims since the recent floods in northern NSW and southeast Queensland were declared a disaster event, Hall said. 

And the sector is likely to field $2.3 billion in claims, based on averages from past disasters, as a consequence of the flooding.

Hall said the most pressing issue facing small businesses is the increasing difficulty in accessing insurance across swathes of the country in bushfire or flood-prone areas, combined with a tight insurance market that is pushing up prices globally.

The medium-term challenge that will come for both homes and businesses damaged by the floods, particularly in Lismore, he said, will be an uneven rebuilding effort defined by residents’ ability to claim insurance.

Alexandra Hordern, director of the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), which assists in the resolution of disputes and advocates for small businesses and family enterprises, told the summit the term “market failure” had become a catch-cry across the small business sector. 

While rising prices were defined by the insurance sector as a sign the market is working “because they’re pricing in the risk”, Hordern said “small businesses are saying: this market is really not working”.

How can the insurance sector better serve small businesses? 

“Risk mitigation is really, really important in some of these high risk industries,” Hordern said.

She said the feedback she had heard from small businesses on the ground was that they want to see greater funding for “natural disaster preparedness and resilience”.

“The appetite for underwriting and risk is diminished significantly, and we’re in that part of the cycle,” Hall said.

Hall said the Insurance Council in the past six months has developed a business advisory council that will work bilaterally with industry associations on issues around insurance costs. 

“If we can work bilaterally with industry associations, and provide a flow of information from the insurers through that association as to what are the key risk drivers that are pricing the product so high, we can start to delineate what needs to be done,” Hall said.

Hall described this collaboration as being “either in terms of better information coming back into the insurance sector so that we can see how the risks are being managed”, or insurers working with industry associations to call for the reforms that might be needed that are driving up costs.

He said as disaster management becomes a greater consideration for more small businesses, data gathering among industry associations that could provide a clear picture to the insurance sector would be a valuable tool. 

“Industry associations, particularly the ones that have really great connections with their membership, can corral information about how your industry manages risk and self-regulates,” he said.

“How can we provide that back to those underwriters who are doing the work to understand what the risks and costs look like? There’s plenty of examples of us doing that and having practical outcomes.”

‘A pivotal point’ 

Hall also conceded there is a limit to what the insurance sector could achieve in the absence of more action by the federal government around mitigation and disaster preparedness measures. 

“We are at a pivotal point in the country at the moment,” Hall said.

And in response to a question about whether the insurance industry should contribute to preparedness efforts, Hall countered that the NSW government is receiving 40% from insurance companies currently, but the sector was not able to designate how that money is spent. 

While businesses can initiate their own adaptation of property, such as ensuring electrical equipment is located higher up, to lower their insurance premiums, there is also a larger conversation about the level of risk state and federal governments should allow businesses to operate within. 

“There is a window of opportunity, particularly in the next few weeks, to make some decisions about the future, particularly in Lismore,” Hall said.

“There are still 10 other towns that could be another Lismore in the next few years.”