The rise of micro-businesses in Australia is a testament to the freedom and opportunities that running a small enterprise provides. But as more people are choosing to go out and provide specialised trade services, more are being faced with insurance issues that they haven’t encountered before. If the aim is to build a healthy and robust small business community, it’s crucial that more tradies understand insurance well enough to make informed decisions about their risk management plan.
In 2016, the ABS reported that a whopping 88.3% of businesses in Australia had 0 to 4 employees, which puts them in the sole trader or micro-business category, whilst only 9.2% had 5 to 19 employees, which is a more traditional small business size (1). The figure is slightly distorted by the number of ABNs allocated to SMSF ownership companies, but the reality is clear: the staff of the archetypical Australian company can all be driven to work in a small family car.
So if we’re going small, it means more business owners have less resources and limited experience with business insurance. If the trend continues, this issue could become a very real form of exposure within the business community.
With this in mind, let’s have a look at some of the major insurance types that tradies should consider. We’ll also offer some hints on what to consider before you buy, and the kind of information you’ll want to have handy.
Public Liability (PL) insurance is the number one priority for most small businesses because it covers a huge legal liability – the duty of care we have to keep others and their property safe from injury or damage. Whether a claim is valid or not, PL protects you against the legal and compensation costs involved.
Due to the nature of the claims involved, costs for PL cases can stretch well into the millions of dollars, so the risk for a small business can be incredibly high. Claims can stem from something as seemingly innocuous as tripping on a loose cord, accidentally bumping an expensive piece of equipment, or spilling coffee on a client’s laptop.
Highlighting the importance of PL insurance is the fact that many government and professional organisations require minimum coverage before they’ll licence a practitioner or grant membership admittance.
Professional Indemnity (PI) insurance is crucial if you provide advice or services, and protects against the legal costs of being accused of any breach of duty. PI protects professionals against a huge legal liability by covering the risk of negligence, and will pay for court costs and compensation claims – regardless of whether a claim is valid or not.
Common business types that require PI include accountants, bookkeepers, masseurs, beauty therapists, consultants, life coaches, personal trainers and psychologists. Claims can arise from something as simple as an accountant missing a tax expense, to something more complex such as an engineering or architectural error leading to faulty building construction.
Business Insurance (BI) can protect your contents and work premises against loss, damage or theft, as well as the financial pain of business interruption. But this is just the tip of the iceberg, as BI is really an umbrella term for a host of cover options, including things like machinery breakdown, glass, theft, portable equipment, employee dishonesty and money.
With BI, you can literally pick and choose the options you want to include, depending on the nature of your business and specific items that you wish to insure. It might be your tools, your dishwasher or the glass in your store. It may even be that you want to protect yourself against the expense involved in a tax audit, or business interruption so that an insured event doesn’t stop the flow of cash to your company.
The point of BI is that it should be tailored to your specific business needs. Be aware of the exclusions in your policy, however. Finding out you’re not covered for a claim after the event is a painful way to learn.
But wait, there’s more…
PI, PL, and BI are the primary insurance types that micro-businesses may need, but there are others that warrant consideration, including Management Liability, Personal Accident and Cyber Liability insurance. Personal Accident insurance, in particular, is widely needed as it protects your most valuable real asset – your ability to earn an income. Also, as more business is conducted online, the threat of cyber attacks is turning more business owners to Cyber Liability insurance.
The process of purchasing business insurance should be prefaced by a little bit of forethought and a small amount of research.
The forethought is related to risk. Ask yourself what kind of insurable risks your business faces and what the severity of those risks might be. The level of impact is key, because severity is much more important than probability. You want to protect yourself against the events that could do the most damage, not the ones that you could easily handle. You’ll also want to have a think about how you personally feel about risk. Do you have a high tolerance for it, or does the thought of risk keep you awake at night?
The research part is mostly about collecting the basic information you’ll need to have handy when you take action, including:
In addition, you should have a fair idea of the amount of cover required. With Public Liability insurance, for example, $10 million is a standard amount, but $5 million or $20 million are sometimes required.
Australia isn’t really a nation of small businesses, it’s a nation of micro-businesses. This is a wonderful sign for our economy, but the risk is that vast tranches of the business community are trading without first catering to their insurance needs. The key for sole traders and micro business owners is to find out what those needs are, and shop around for a provider that can meet them.
If you’re a small or micro business on Oneflare, insurance is important for you to have to perform jobs safely and without risk. It’s about being protected from any possible situation that could leave you out of pocket. If you haven’t already, upload a copy of any licenses, certificates and proof of insurance that you may have onto your Oneflare profile.
*Michael Gottlieb is the founder and managing director of BizCover, a leading Australian small business insurance site. He has founded a number of insurance businesses since 2001, and is featured on Insurance Business Magazine’s 2017 Hot List.
BizCover™ Pty Ltd (ABN 68 127 707 975; AR 338440) is a corporate authorised representative of Mega Capital Pty Ltd (ABN 37 098 080 418; AFSL 238549). This is general advice only.
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