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If you’ve taken a 'set and forget' attitude to your small business insurance, it could be time to rethink your strategy.
It’s important to make sure you have the right cover in place to suit your business, and to recognise how your structure, operations and exposure to risk can change over time.
For many small business owners, insurance is something they have in place without giving too much thought to their evolving needs, what their policy covers or what might happen if they need to make a claim. If this sounds familiar, consider this your reminder to review your cover and ensure it still meets your needs.
We asked Mark Small, a safety and risk management expert with more than 20 years’ experience, and a member of our SBDC Enterprise Skills panel through his company Elect Training & Consulting, to share his insights on insurance for small business – and offer some tips to help business owners avoid issues by having the right type and amount of cover in place.
Know the risks of being underinsured
Mark has worked with a wide range of businesses and has seen how underinsurance can create serious financial pressure for business owners and even make a business unviable.
“It only takes one event, such as property damage, theft, or a liability claim, for the consequences to be devasting to a business,” he says.
“Being underinsured can also put you in breach of contractual or legal obligations. Many leases, supplier contracts, and client agreements require specific levels of insurance coverage, and failing to meet these requirements can expose your business to further risk.”
Understand the details of your policy
Mark recommends all small business owners have a clear understanding of what their insurance policies cover, what is excluded and what limits apply.
“Each policy is different, so knowing the details helps avoid confusion or disputes if a claim needs to be made. If your insurance policy limits are set too low, you may have to cover losses out of your own pocket.
“For example, if a small business was impacted by a fire which causes significant damage to its premises and equipment, the owner might assume that insurance would cover the full cost of rebuilding and replacing what was lost. They might then discover the policy limit is actually below the actual replacement value. The insurance payout would not then meet the actual costs, leaving the owner to fund the shortfall personally.”
“It’s also important to understand the claims process, including what documentation may be required and the timeframes for lodging a claim.”
Review your insurance needs regularly
According to Mark, insurance policies should be reviewed regularly, particularly before policy renewal or whenever significant changes are made to the business.
“It’s important to make sure the insurance still reflects the size and nature of the business, particularly after purchasing new equipment, moving premises or expanding operations. Check whether the value of business assets such as buildings, vehicles and equipment has changed and make sure the policy limits still provide adequate protection.”
“Business owners need to also consider whether existing policies cover any new risks that have emerged and whether the terms, exclusions, excesses and limits remain suitable for the current size and operations of the business. They need to make sure all legally required cover, such as workers’ compensation, is in place and current, and that essential policies like public liability insurance are appropriate for their business activities.”
Consider expert advice about insurance
“I wish every business owner knew how important it is to get expert advice about insurance,” says Mark.
“In my own business, I work with an insurance broker whose guidance has been invaluable in making sure the right cover is in place. They understand how different types of businesses operate and know how changes such as entering into contracts, purchasing new equipment, relocating, or changing the scope of operations can affect coverage.”
“A broker also helps ensure that all mandatory insurance requirements, such as workers’ compensation, are maintained and up to date, and that essential policies like public liability are suitable for the level of risk the business faces.”
Find out more
- Learn more about insurance, including the factors that influence costs and tailoring coverage to your business type.
- The Need a Broker website can help you find an insurance broker near you.
- If you run a home based business, make sure you understand how this might impact your home insurance.
- We also recommend using our free business continuity plan template and risk analysis matrix to help you put contingency plans in place for a range of scenarios.
