Small Business Insurance in Australia

Could you determine which insurance policies are mandatory and which are not?

It’s a fact that accidents and mistakes can happen while running a business – and often, small and medium-sized enterprises (SMEs) that form the backbone of the country’s economy are particularly vulnerable. That is why having the right business insurance in Australia is essential. The right coverage protects businesses from unexpected events that could have otherwise cost them several thousands of dollars – if not millions – in income, making it difficult for many to recover. But each business comes with a unique set of risks. Thus, there isn’t a one-size-fits-all coverage that can cater to every business need.

In this article, I will share everything you need about business insurance in Australia. I will outline which policies are mandatory and what optional coverages are available. I will also examine the benefits of purchasing protection.?

Is it compulsory to take out business insurance in Australia?

While the types of coverage that a business needs vary depending on a range of factors, Australian businesses are legally required to take out three kinds of insurance policies, according to Business.gov.au.?

These are:

1. Workers’ compensation insurance, if your business has at least one employee
2. Compulsory third-party (CTP) insurance, if your company owns a vehicle
3. Public liability insurance, which is required in certain types of businesses

Here’s how each of these mandatory business insurance policies works:

Workers’ compensation insurance

Workers’ compensation insurance is a form of business insurance in Australia that pays out the cost of medical care and part of the lost income of employees who get sick or injured while performing their jobs. It also protects you, the business owner, from the financial liability of paying for expenses arising from work-related illnesses and injuries out of pocket.

Each state and territory have their own set of rules regarding workers’ compensation. If you want to know how this type of coverage works in your jurisdiction, you can visit your state or territory’s workplace health and safety authority’s website below:

• Australian Capital Territory ?
• New South Wales
• Northern Territory
• Queensland
• South Australia
• Tasmania
• Victoria
• Western Australia

Compulsory third-party insurance

All drivers in Australia, including those who operate commercial vehicles, are legally bound to carry at least one type of coverage – compulsory third-party (CTP) insurance. This type of coverage is paid for when you renew your vehicle registration.

CTP coverage, also known as green slip insurance in New South Wales or transport accident charge (TAC) in Victoria, is required by each state and territory. It covers the driver’s liability if other people are injured or killed in a vehicular accident. CTP insurance, however, does not cover injuries to the driver and their passengers and damages to any vehicle or property.

And just like workers’ compensation, every state and territory operates CTP insurance slightly differently. You can check out how this type of business insurance in Australia works by visiting your local vehicle registration authority’s websites below:

• Australian Capital Territory ?
• New South Wales
• Northern Territory
• Queensland
• South Australia
• Tasmania
• Victoria
• Western Australia

Public liability insurance

Any business could have an unexpected impact on a client or a member of the public. This is where public liability insurance comes into play. This type of business insurance policy helps protect your business against the following claims if these are caused by negligence in your business activities.

• Third-party injuries, including those suffered by a customer, supplier, or any member of the public
• Damage to property owned by a third party
• Legal and defence costs associated with a covered claim
• Product liability in some cases

Certain types of businesses are legally required to take out public liability insurance before they can operate. These may include companies that:

• Participate in or host events attended by members of the public
• Manufacture and sell any product
• Work on a client’s site
• Deal with customers, suppliers, or members of the public who visit their business premises.

What other types of business insurance do Australian enterprises need?

Apart from the policies discussed above, which are considered mandatory business insurance in Australia, there are several other optional coverages that Business.gov.au suggest that enterprises consider. The government website grouped the policies based on the type of protection provided.?

These are:

Personal or loss of income insurance

These policies provide financial protection if something bad happens to you or someone in your business. Some pay a portion of a person’s salary, while others work as an investment fund where you contribute over a certain period and get money at maturity.?

These are:

• Income protection or disability insurance: Pays out a portion of your income if you cannot work due to an illness or injury.
• Total and permanent disability insurance: Pays a lump sum if you become permanently disabled before retirement.
• Trauma insurance: Provides a lump sum if you contract a specified life-threatening illness.
• Life insurance: Provides a lump sum or series of payments if you die or are permanently injured.
• Business interruption (BI) or loss-of-profit insurance: Covers losses resulting from damage to property if caused by an insured peril. This has become one of the most contentious types of business insurance policies because of the COVID-19 pandemic.
• Management liability insurance: Covers the business owner’s assets when a manager or director acts in an illegal or unethical way that causes losses to individuals or businesses.
• Employee dishonesty insurance: Pays out for losses resulting from employee theft or fraud.

Stock, products, and asset insurance

These insurance policies protect the business assets you cannot afford to lose.

• Commercial property insurance: Insures your building and its contents against loss or damages due to unexpected events, including fire, earthquake, lightning, storms, flooding, and vandalism.
• Burglary insurance: Covers your business assets against theft and burglary.
• Deterioration of stock insurance: Pays out for spoiled or damaged stock due to refrigerator or freezer breakdown.
• Farm insurance: Insures crops, livestock, building, and machinery.
• Goods-in-transit insurance: Covers the goods your business buys, sells, or uses during transport.
• Machinery breakdown: Protects your business when mechanical and electrical plant and machinery at the work site break down.
• Tax audit insurance: Pays out the cost of fees incurred from a tax audit or investigation into the business.
• Property-in-transit insurance: Covers theft or damage of items your business transports, including tools and equipment.

Accident and liability insurance

This business insurance policy provides financial protection if the business is liable for damages or injuries to another person or their property. The most common coverages include:

• Management liability insurance: Covers your business’ assets when a manager or director uses illegal or unethical management practices that cause losses to another person or company.
• Product liability insurance: Protects your business against claims of bodily injury or property damage resulting from using your product.
• Professional indemnity insurance: Protects your business against claims arising from negligent acts or omissions while providing professional services and advice. Coverage typically includes compensation, legal fees, and investigation costs.

Technology and cybercrime insurance

These types of policies provide coverage against new risks resulting from the use of technology. These include:

• Electronic equipment insurance: Covers electronic devices and equipment your business owns from theft, destruction, or damage.
• Cyber liability insurance: Protects your business from legal costs and expenses related to cybercrime. Coverage can include fines, penalties, and notification costs in a data breach. It may also cover the loss of profits resulting from business interruption caused by a cyber event.

What are the advantages of taking out business insurance in Australia?

One of the biggest benefits of purchasing business insurance in Australia is the financial protection it provides when unexpected losses happen. During your business’s day-to-day operations, you may face situations that can hurt your profitability. Manufactured and natural disasters can take a huge chunk of your revenue, while mistakes can result in costly litigation – not to mention reputational damage. Having the right kinds of business insurance can help your business recover faster.

Purchasing business insurance may also boost your company’s credibility, as most clients and stakeholders prefer working with businesses they know are financially protected.

Business insurance, however, is just one facet of how Australian enterprises can minimise their losses. Pairing insurance coverage with good risk management practices is often the best way to protect your business’ assets and finances.

What are the risks facing businesses in Australia?

Every year, giant insurance company Allianz surveys thousands of businesses from about 90 countries and territories and more than 20 industries to determine which risks these companies see as posing the greatest threat to their operations.?

Here are the ten biggest risks businesses in Australia are facing, according to Allianz’s latest Risk Barometer report.

1. Natural catastrophes – such as storms, floods, earthquakes, bushfires, and other extreme weather events
2. Business interruption – including supply chain disruption
3. Climate change – physical, operational, and financial risks resulting from global warming
4. Cyber incidents – cybercrime, malware, and ransomware causing system downtime, data breaches, fines, and penalties
5. Macroeconomic developments – including inflation, deflation, monetary policies, and austerity programs
6. Shortage of skilled workforce
7. Changes in legislation and regulation – such as trade wars and tariffs, economic sanctions, protectionism, and Euro-zone disintegration
8. Pandemic outbreak – including health and workforce issues and restrictions on movement
9. Energy crisis – including supply shortage and outage, price fluctuations
10. Market developments – such as intensified competition and new entrants, mergers and acquisitions, and market stagnation and fluctuation

Can you run a business without insurance in Australia?

Technically, yes. But is it worth the risk? The latest figures from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) show that around 60% of all small businesses nationwide consist of non-employing sole traders. As such, non-employing sole traders cannot take out workers’ compensation insurance for themselves, and if they do not own a commercial vehicle, purchasing CTP insurance is unnecessary.

Meanwhile, for Australian business owners with at least one employee, there’s just no way around it. You need to take out workers’ compensation insurance. The penalties for failing to do so vary depending on the state or territory of the business, but they almost always include hefty fines or even jail time.

In NSW, for example, an employer who fails to purchase coverage could receive a double avoided penalty, according to the State Insurance Regulatory Authority (SIRA). A double avoided penalty is a fine equivalent to double the amount of the insurance they failed to pay. They can even get to prison if one of their employees is injured.

As for CTP insurance, driving without one can likewise result in heavy fines, depending on the injury or property damage you caused and the voiding of your car registration. Business owners must remember that while taking out these mandatory business insurance policies and other optional coverages can cost them money, the financial protection these plans provide makes them a worthwhile investment in the long run, especially if an unforeseen disaster strikes their business.?

Is it worth taking out business insurance in Australia??

Which policies do you think are necessary, and which ones are not?

Share your thoughts below.