Guide To Business Insurance Costs In Australia

If you’re a micro or small business your insurance needs may be simple, but it depends on your occupation and industry. Laura Meyer, founder and director of MeyerInsure and NIBA Qualified Practising Insurance Broker said that as a business grows, the complexity and risks increase, which can require additional coverage.

She said the two most common types of insurance businesses need are:

• Workers’ compensation insurance, which is compulsory if you have employees, engage certain types of contractors, or for working directors of a company.
• Public and product liability insurance to to cover third-party injury and property damage you might cause as a result of negligence in conducting your business.

“Then depending on what you do and the services you provide, you may also need professional indemnity insurance, and cyber insurance is also becoming more important to consider for even the smallest of businesses these days,” Meyer adds.

Public liability and professional indemnity insurance are often a requirement for working on particular sites, such as having a market stall, or meeting a client’s contractual demands.

Meyer said that growing businesses may also require:

• Property or asset insurance for damage to your premises, work vehicles, machinery and equipment, stock, or even customers goods that are in your physical control.
• Business interruption insurance to cover lost income if something like a fire were to disrupt your business operations.
• Management and employee practices liability insurances to protect directors and officers, and for claims arising from HR issues as you grow your employees.

Other types of business insurance to consider, depending on the business you operate, include:

• Crime, theft and money insurance
• ICT insurance for IT professionals
• Tax audit insurance
• Employment insurance
• Construction and contract works insurance
• Marine cargo and inland transit insurance
• Farm, farm machinery and crop insurance
• Corporate travel insurance
• Prize indemnity insurance
• Product recall insurance
• Environmental liability insurance
• Medical and practice indemnity
• Commercial property owners insurance

What’s a Business Insurance Package?

When you work with an insurer or broker as a small-to-medium business, you’ll likely be offered what’s known as a business insurance pack or ‘biz pack’. Biz packs combine multiple insurances tailored to your needs in one package so you’ll only pay one premium.

What you can add to a biz pack varies by insurer or broker but might typically include public liability, property cover, theft and business interruption insurance. Meyer argues that broker policies are generally “beefier” because brokers belong to industry bodies that are able to negotiate better policy terms and conditions.

“So it’s important to note that not all policies are created equal, even if you’re quoting like-for-like covers, there are often big differences in the fine print,” she said.

There’s no definitive answer for how much business insurance should cost, because some businesses will only need one or two policies while others may take out many more. But as a rough guide:

• A small to medium business might pay between $50 and $200 per month for public and product liability insurance only.
• A suite of insurances could be as much as $5,000 a year or more.

Myer says property and motor insurances have increased significantly recently, even for business owners whose circumstances haven’t changed and have not made any claims.

“Broadly speaking, the amount of catastrophe claims we have had in recent years in Australia (like bushfires, floods and storms) are costing insurers billions in claims, and we see that reflected in property and motor premiums mostly,” she said.

“Cyber is also getting more expensive, because cyber attacks are becoming more frequent and costs to recover from them are skyrocketing, which means claim costs are being passed back onto customer premiums.”

Aside from insurers’ costs, the main factors that influence the premiums you’ll pay include:

• The kind of work you do and your industry
• How much revenue your business generates
• Your employee headcount and whether you use sub-contractors
• The location of your business premises or operations
• The value of the property and assets you’re insuring
• The coverage amount and excess payment you opt for
• Your previous claims history and costs incurred

Working with an expert insurance broker who knows the market makes it easier to find the right cover at the right price, according to Myer.

“A broker will customise a policy to fit your needs and their advice is invaluable in managing risks and keeping costs down. Plus they’ll help you at claim time, which ultimately saves you not only money, but time and your sanity,” she says.

She says brokers’ familiarity with handling claims means they know which insurers are best to deal with, or best avoided.

“In the end, the claim is the pointy end of the stick and the whole point of taking out insurance, so it’s important to not just look for the cheapest price, as that’s almost a guaranteed poor result when it comes to claiming.”

What Level of Cover or Excess Should You Choose?

The amount you’ll need to be insured for, and the excess you select, may be determined by:

• Contractual stipulations, such as a client that wants you to have professional indemnity insurance up to $20 million.
• Mandatory industry limits or limits set by your industry’s professional membership body.

“However if you don’t have an industry required limit, or a contractual obligation, I find the best way to approach this is to think about the worst case scenario and work from there,” Myer advises.

“What would happen if someone sued you for millions? How long would your business take to get back on its feet after a loss or interruption—would you need to retain key staff, would you have suppliers to pay?”

She said that while increasing your excess can often help to lower your premium, you need to ensure you’ll have savings available to pay the excess in the event you need to claim.

Meyer told ForbesAdvisor that there was a big issue with underinsurance related to commercial property and asset insurances due to business owners not accurately declaring the rebuild or replacement values.

“For example, if your building or equipment is insured for less than its replacement value, you’ll only get paid out a portion of what it actually costs to rebuild or replace those assets,” she said.

That’s because when property isn’t valued correctly, it can trigger a policy’s ‘underinsurance’ or ‘co-insurance’ clause. So if the declared value is only 50% of the actual value, your insurer may only be required to pay out 50% of the claim amount.

“This can leave you seriously out of pocket and struggling to recover from the loss.”

Sometimes the incorrect values are intentional in an effort to reduce premiums, but it can also be due to business owners not paying enough attention to their sums insured.

“This is where using a broker is of most benefit, in recognising sums may be inadequate, regularly reviewing your covers with you, and offering services like commercial property sum insured calculators and surveys to help identify an appropriate sum insured and avoid these clauses,” Meyer said.

She says another reason small business owners find themselves underinsured was an “it won’t happen to me” mentality.

“Cyber risk is a classic example of this, however it is crucial for all businesses, no matter their size, to understand the specific risks their business faces and really identify whether they would be able to survive a cyber incident without an insurance policy to fall back on.”

Australian Cyber Security Centre data shows the average cost of cybercrime for small businesses increased to $46,000 (and $97,000 for medium businesses) in the 2022-23 financial year.