Understanding different policies
The different policies of insurance have different wordings. It is important to distinguish between the different policies, and equally as important that you understand the difference.
Some policies require you to insure for the full amount of your asset. Others will allow you to take a level of insurance of your choosing.
The defining point is known as the Maximum Probable Loss. If you have a fire at your premises, it is likely that you will lose all your assets. Therefore you must insure for the full replacement cost of those assets.
Failure to do this will enable the insurance company to reduce the amount they will pay in a claim and leave you out of pocket. However, in the event of a burglary, it is unlikely that you will lose all your assets.
The insurer will, therefore, allow you to insure below your total asset value but will only pay to the amount you insure.
The alternative to insurance is to self-insure. Self-insurance is not usually practical, as losses at the wrong time may be financially disastrous for the business. Give this option careful consideration before accepting the responsibility.
What should you insure against?
The following insurances are compulsory in all States of Australia:
Workers’ Compensation: Some states have a sole insurer for this class of insurance. The cost is based on wages paid and a rate determined to reflect the risk of injury (eg, indoor clerks will have a lower rate than builders)
Third Party Personal Injury due to use of a Motor Vehicle: This insurance is usually paid with the registration of a vehicle. It does not cover property damage to other people’s vehicles and/or property and does not cover you or your vehicle for injury or damage.
In addition to the above, the following four types of risk should be insured by your company:
Loss or damage to your property, including stock, equipment, fixtures and fittings, motor vehicles and buildings. Note: You may need to take several policies to cover all your risks such as Fire, Burglary, Glass, Motor Vehicle, etc.
Loss of profit resulting from interruption of business caused by an insured loss to the business’s assets for which they are insured.
Personal injury and property damage to the general public, or their property, caused by your negligence or a defective product you produce or supply as an agent of a non-Australian company.
Loss to the business caused by the death or disability of key employees or the owner.
Finding a reputable broker or agent
It is very important to find a reputable broker or company to deal with. A good broker or company will be able to give you good risk management advice and, whilst the cost of the premiums must be competitive, the company must also attend to any claims promptly.
It is suggested that you confirm that the insurance company is registered and that they are linked to a reputable insurance company.
This is done by checking the Insurance Commissioner’s annual report or checking with the Insurance and Superannuation Commission.
One you have selected a broker, and agreed on your requirements, insist on having a cover note issued until you receive the policy. In case anything does go wrong, you should keep written confirmation of your instructions, detailing the insurance company, the period of cover and the risk assured.
Types of policies available
Below are a number of different types of insurance available in Australia. The list is obviously not complete, but should serve as a guide to the sort of events that are usually insured against.
Motor Vehicle Third Party Property Damage only protects the owner of the vehicle for damages to vehicles owned by others.
Comprehensive insurance covers damage to your vehicle and damage to any third party and usually covers incidental costs.
Note: Make sure your vehicle is covered for business use (if applicable).
Fire Insurance covers loss or damage to premises caused by fire, lightning and other perils. If insurance is required for other events not automatically included (eg, flood), then higher premiums may have to be paid.
Consequential Loss is the insurance of profits against specified loss-producing events such as fire.
Burglary Insurance covers damage from burglars breaking into the premises and loss of property (excluding money) as a result. It does not cover theft from employees or shoplifting. Be sure to choose a policy that increases coverage during high stock periods, such as Christmas, Easter or a period of your choosing.
Public Liability covers your legal liability for compensation to any member of the public, who is not an employee or a family member, who suffers injury, damage to property or death, due to your business operations, whether they be at your premises or elsewhere in Australia.
Product Liability protects your legal liability against claims arising from your goods that have caused injury or damage, whether it is the result of the sale of those goods or the result of a repair or service.
Personal Accident and Sickness is for self-employed people, like you, who are not covered by workers compensation insurance (often called Income Protection Insurance). Too many people overlook the importance of this type of insurance, although it is now seen to be just as necessary as any asset cover.
Glass Insurance is usually for retailers and covers windows, display case breakages and can include damage to property as a result of such breakage.
Transit Insurance covers loss or damage to goods in transit between your suppliers and your premises, or your premises and your customers. The mode of transport may be land, sea or air (it is important to determine when the goods become your responsibility). Coverage can be arranged within Australia or on a worldwide basis.
Export Credit where credit is extended to overseas customers, cover can be taken out to guarantee payment in the event of protracted default, liquidation or bankruptcy.
Fidelity Guarantee covers losses caused by employees misappropriating cash and/or goods (theft or embezzlement).
Engineering Insurance covers machinery breakdown and spoilage of goods.
Most insurance companies have Packaged Policies which are designed to cover most small business needs in one policy and cover most of the insurances mentioned. It is important with such policies to remember the principles of managing risk discussed earlier.
It is a waste of money to over-insure and it could be very costly to under-insure. In arranging a package deal make sure you are getting the insurance that you need.
