SMEs forced to hand over more cash as the price of insurance heads up

SMEs across Australia are paying more to insure their businesses, with the latest installment of the BizCover Small Business Insurance Index showing commercial insurance premiums have increased for the first time in more than two years.

Read more: Do I need insurance for my online business?

BizCover, an insurance comparison website, collects data from nine insurers for its quarterly index, including firms such as Allianz, AIG and QBE Insurance Group.

The index increased by five points in the three months to December 2015, which is the first upward movement in the index in 10 quarters.

The movement brings the index back to the same level it was in the fourth quarter of the 2013-14 financial year, although the price of commercial insurance for small businesses is still 21% lower than the first quarter of the 2012-13 financial year.

Small businesses in the retail trade, which includes cafes and restaurants, appear to be the hardest hit, with insurance premiums in the sector increasing by 10% last quarter.

BizCover said in a statement the increase is being driven by a “hardening” of rates in the non-professional sector, with the index recording a four-point increase in rates for public liability insurance and business packs that predominantly cover perils and theft.

Rates for professional indemnity insurance have normalised back to the average prices recorded in 2015, according to BizCover.

BizCover managing director Michael Gottlieb told SmartCompany “an abundance of capacity” is maintaining downward pressure on insurance premiums, which is “being balanced by increasing loss ratios and insurers needs to increase rates to improve profitability.”

For this reason, Gottlieb says it is unlikely that insurance rates will rise across the board, although “there will be specific segments that have deteriorating loss ratios and lower competition where insurers will be able to increase rates.”

“Commercial insurance for most businesses will continue to remain relatively flat with good levels of competition thus allowing astute buyers to continue to benefit from the soft market,” he says. 

But when it comes to the retail market, there is less competition in the market and insurance is more complex to price, Gottlieb says. 

“This is because of the greater level of infrastructure required to write this style of insurance,” he says. 

“There are relatively few insurers in Australia that have sufficient data to technically price risks based on geographical location, type of business and the physical structure of the building. Furthermore, claims in this sector mostly involve physical property and this require access to a large number of professionals around the country who can assist in assessing the claim and helping the business get back to the position they were prior to the claim.”

It pays to shop around

David McKellar, director of Allied Business Accountants, told SmartCompany this morning “it is always smart to shop around” for business insurance.

“I recommend all my clients use an insurance broker who is able to shop around with different insurers to find the best in the market,” he says.

McKellar also recommends business owners regularly revisit their insurance policies as the most affordable policy today may not be the best policy for the business in 12 or 24 months time.

“Business insurance in general can be quite complex with different inclusions and exclusions,” McKellar says.

“It’s important to have the right cover as well, as opposed to just shopping around.”