What insurance do you need to start a small business?
All businesses need insurance, but there isn’t one universal policy for all businesses.
That’s because the cover required will depend on many factors including the business type, sector, industry and size. A real estate agent will face very different risks to an engineering firm, café or small factory.
Before you choose a business insurance policy, you’ll need to evaluate your needs and also consider what is legally required to run your company.
Small to Medium Enterprises (SMEs) face a sometimes daunting risk landscape, says Aaron Gavin, QBE’s General Manager, SME.
“Those starting out are particularly vulnerable as in many cases they’re only one claimable event away from going out of business.”
What type of insurance do SMEs need?
There are more than two million SMEs in Australia and each one is different.
“SMEs are incredibly diverse and each business will have its own unique needs,” says Gavin.
A good place to start might be to think about insuring your property, your liability and your business interruption risk, he says.
“To run most businesses, you need physical assets, so should have the appropriate level of property cover,” Gavin says.
“Invariably businesses will have some liability, especially if they’re dealing with customers, so they’ll need liability cover too”.
“In addition, most SMEs will want to consider some type of business interruption insurance, which is there to protect their income in their time of need when an event occurs and they’re unable to trade as they normally would.”
Some SMEs may also have to meet specific legislative requirements or obligations as a member of a professional board or association or may have contractual responsibilities as in the cases of landlords to customers, Gavin adds.
For a small to medium business, insurers often bundle their business insurance products into business packages. These tend to meet the typical needs of a number of industry or sector-specific businesses, for example, cover tailored to tradespeople, professional services providers or commercial landlords.
A business insurance package is usually designed for SMEs because it bundles together a variety of broad coverages and can be more efficient and cost effective than buying multiple separate policies.
What type of insurance protects your assets?
Your property or business premises, your stock and products, computers, machinery or equipment are all examples of your key business assets, explains Gavin.
“Be sure to consider the assets you physically need protected to be able to run your business. This may help you understand the type of insurance required specifically for your assets.”
For example, if you own a small import and export company, you will probably want to consider having property insurance to cover your building, contents and stock against events such as fire, storm or malicious damage, he says.
Insurance for your revenue
Business interruption cover pays for ongoing costs that continue regardless of whether the business is closed or substantially affected. These costs include rent, mortgage repayments, fixed electricity, gas and water charges. It also covers additional costs incurred to minimise the effects of the closure or downturn, plus net profit and/or loss.
For example, a metro retailer’s ability to trade would be severely impacted if a water main bursts outside its premises, cutting off access and reducing customer traffic, causing takings to drop for weeks on end while the council attempts to find a fix.
What is public liability insurance?
Public liability insurance covers a business for the costs associated with legal action and damages if they’re found liable for injury or death of a third party, loss or damage of property, or economic or financial loss that happened because of negligence.
“Being sued for negligence is extremely costly and the likelihood of it happening to your business is unpredictable,” Gavin warns.
For some industries, liability insurance is compulsory before you can legally operate, for example, engineering firms or businesses arranging public events or operating certain types of facilities.
What is professional indemnity insurance?
Some occupations rely on an individual to provide a professional service or advice to other businesses or people. These occupations, for example accountants or estate agents, face the risk of having an allegation made against them which they may need to defend in court.
Professional indemnity insurance covers small businesses if the business owner is found liable for negligence, if they breach their professional duty or if they make mistakes, errors or omissions that result in financial loss for another person or company.
Commercial Motor insurance
If you have a vehicle that you use within your business, or a small fleet of vehicles you will need to consider having commercial motor insurance, says Gavin.
The vehicles may range from cars to visit clients, to small trucks or goods carrying vehicles. There is a choice as to the level of cover that can be bought and typically commercial motor polices offer a range of additional benefits including no windscreen excess for certain vehicles, driver repatriation, sign writing and cover for replacing keys and locks.
Insurance and your legal obligations
To operate a business in Australia, some forms of business insurance are required by law.
If you have employees, you must have workers compensation insurance.
Work, health and safety laws in Australia require that if an accident or illness occurs during people’s work, they must be able to access first aid, workers compensation and rehabilitation to return to work.
“Business owners need to remember that they have certain responsibilities to their people as employers,” reminds Gavin.
“Workers compensation is the main statutory cover for this segment of the market and that’s obviously to cover their people in case a workplace-related accident happens.”
Third party personal injury insurance
If you have a car or multiple cars for your business, third party personal injury insurance, also known as Compulsory Third Party (CTP) insurance, is compulsory by law. Specific arrangements for CTP insurance vary according to your location. In most cases CTP is purchased directly from the insurer. QBE provides CTP for business in New South Wales, South Australia and Queensland.
Talk to an expert broker
As business insurance experts, brokers can find the policies that best meet your business needs. How do they work? They’re best described as licensed individuals or firms that serve as intermediaries between insurers and business owners to negotiate insurance policy contracts.
Brokers are often viewed as professional trusted advisors and can offer strategic risk management for business. They can also help business owners who operate in niche sectors with specialised insurance needs that might not be included in a package, for example, bed and breakfasts or 24-hour convenience stores.
How to buy business insurance
Business insurance is commonly bought through brokers. If you don’t have a reliable personal recommendation, the National Insurance Brokers Association (NIBA)* can help you find an accredited broker.
This content relates to all QBE underwritten business pack policies.
*The brokers on this site are not employees or agents of QBE, but are independent entities, QBE is not responsible for any advice provided to you by any broker on this site. Any such advice is the responsibility of the broker concerned.