01 Nov 2019
Why 62% of SMEs are likely to be underinsured

Why 62% of SMEs are likely to be underinsured

Almost 9 out of 10 (87 per cent) small business owners agree that a business liability claim has the potential to put them out of business, cause them to lose revenue, or dry up cash flow.

Yet despite these risky stats, 62 per cent of SMEs said they are unlikely to have the right insurance in place to protect their business.

That’s according to the QBE SMEs and Insurance Report which surveyed over 600 Australian SMEs1 on their insurance habits.

Results revealed that if faced with a liability claim, the majority of SMEs would likely run up large personal debts to pay these, with 33 per cent admitting to simply not knowing where the money would come from or being unable to finance the legal costs.

“If you’re expanding your business, it’s good practice to keep your broker or insurance professional in the loop so they can help you keep your coverage up to date,” says Aaron Gavin, QBE General Manager, Small to Medium Enterprises.

“One key way is to make sure your liability insurance is kept current in case you have to pay compensation for things like personal injury or property damage to others.”

You have a duty of care to protect your customers from harm, whatever the size and nature of your business. The incidents may not even be your fault, but they occur across all industries, affecting people and property, and costing Australian businesses millions of dollars each year.

Infographic showing the top ten most liability claims to impact businesses based on QBE claims data analysis from 2015 to April 2019

Source: QBE liability claims data 2015 to April 2019

“When people think of insurance they tend to think more of their tangible assets like property, the business property or electronic equipment first,” says Gavin. 
And while assets are important, some of the most commonly occurring claims are when someone has injured themselves while on a business premises or involved in that business. 

“This means that liability is the most commonly taken cover in small to medium enterprises,” Gavin explains.
Liability insurance can pay compensation for injury, or damage that has occurred at your business. For example, incidents like a slip and fall or a trip and fall are among the most commonly occurring incidents.

The good news is that liability is generally more straight forward than other kinds of insurance.

“Having liability insurance is fairly intuitive. If people are visiting your business premises and something happens to them while they’re there, then you can be legally liable for whatever injuries they incur,” Gavin explains.

“It’s not like a property scenario where you’re going through and identifying each individual piece of property and working out the right sum to insure them for. Liability is set up differently and generally you have a limit of liability which is, for most sorts of business insurance policies, either 10 or 20 million dollars.”

Liability insurance can be purchased in a business insurance package. Find out more here

Which claims cost the most in your industry?

The incidents that can have the highest financial impact on your business are not always the most commonly occurring incidents. And many of these high cost claims incidents relate to injuries, not just to property damage. So, it’s important to protect your customers, your business, employees and yourself through adequate insurance coverage.

Infographic showing the top ten most expensive incidents that have caused liability claims ordered according to the average incurred per loss from QBE claims data analysis from 2015 to April 2019

Source: QBE liability claims data 2015 to April 2019, claim categories ordered according to the average incurred per loss.

Infographic showing the top five highest claiming sectors for liability claims based on QBE claims data analysis from 2015 to April 2019
Source: QBE liability claims data 2015 to April 2019, based on frequency of claims

The real claims costs

Infographic showing the average claims cost of common liability claims based on QBE claims data analysis from 2015 to April 2019
Source: QBE liability claims data 2015 to April 2019

Expert analysis: why some businesses don’t have the right cover

“Most people understand they need some kind of liability insurance, but two of the key insurance mistakes people make are being underinsured for business property and business continuity,” says Gavin.

“One really simple example is a tradie. Many tradies work for themselves, and contract or subcontract out their services. Tradies need liability cover because they can’t get on the job site without it. They might then decide their tools aren’t really worth insuring, so they just take out liability and car insurance. In that example, the tradie will make straightforward purchases for what is a relatively simple cover where the risks are reasonably well understood,” Gavin explains.

“But if you’ve got, say, five employees and you’re running a business where you’ve got clients visiting your premises, then your risk exposures can look and feel quite different. People often cover property assets and liability, but they aren’t insured for business continuity.

Man wearing a construction hard hat and driving a forklift in a warehouse

If a fire goes through your premises it can take three weeks to get back up and running. So if you don’t have business interruption cover you can lose three weeks of turnover and therefore profit.

“For small businesses in particular, that might actually mean the difference between staying in business and going out of business. We’ve seen plenty of examples out there where we were able to reinstate the property, and legal liability was covered, but because the business couldn’t continue trading and cash flow was impacted, it lost customers and ultimately went out of business,” Gavin observes.

Many people are now choosing to self-serve their insurance at the micro, sole-trader, SME end of the market because there are insurance solutions out there they can access directly themselves.
QBE sells through insurance brokers and advocates for engaging an insurance professional who can have the right conversation with you about your business risks, and the type of insurance and level of cover you’ll need.
“The simple answer about getting the right cover is that it comes back to the size of your business and to knowing your business. And a broker is ideally placed to help you with that,” Gavin says.
Liability claims case study
QBE recently had a large claim from a client via one of our broker partners where the client had challenges around the level of cover. The client’s business premises and everything in it had been completely destroyed in a fire.
As a business owner, the client was accountable to all third parties that came into contact with the business, including customers and suppliers.
In this case, the business had grown exponentially in a short space of time. It is a manufacturing company with a growing customer base, so it had expanded its premises and invested in more equipment to increase production and meet customer demand.
But the fire happened in the middle of a policy period, which meant the client had to make a claim before the next policy renewal.
Unfortunately, when the business lost everything in the fire – the business premises, machinery and equipment – the liability and property cover in place wasn’t enough to cover the damage. The client hadn’t told the broker about how much the business had grown, so some of its insured limits were set based on the business as it looked at the last renewal, not how the business looks now.
The recent growth of the business included more investment in assets such as equipment, but those new assets weren’t covered. Fortunately, no-one was hurt in the fire, which would have added to the liability costs on top of the property claim.

Bird eyes view of a man sitting at a café bar with his laptop and paying the woman behind the counter for his coffee.

“The key lesson here is that if your business is growing, so are your exposures to risk. And this can also include increased exposures to liabilities as your premises, manufacturing and customer bases expand,” explains Gavin. 

Therefore, your insurance needs to keep pace with your risks.

A good broker can help you understand whether your insurance coverage is still appropriate as your business changes.

Here’s ten key considerations for your small business insurance policy

“Your broker will talk through what the past 12 months have looked like so they can understand what has potentially changed, including any increased liabilities and exposures.

In some cases, they might recommend a change within the next insurance policy,” he adds. 

To avoid getting caught out, however, don’t just wait around for your policy renewal time to have these discussions.

Touch base with your broker or insurance professional and let them know there are changes in your business. Make sure you include some description of the changes so they can help you identify what you need to be covered for and advise you appropriately.

Find out more about liability insurance.


1Pureprofile research study of 609 Australian SMEs completed for QBE Insurance during April 2019

This advice is general in nature and has been prepared without taking into account your objectives, financial situation or needs and may not be right for you. You must decide whether or not it is appropriate, in light of your own circumstances, to act on this advice. To decide if QBE’s products are right for you, please ensure you obtain and consider the Policy Wording or Product Disclosure Statements and Target Market Determinations, available online at QBE.com/au. Insurance issued and underwritten by QBE Insurance (Australia) Limited (ABN 78 003 191 035, AFSL 239545).

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