Business News

Aussie small businesses at risk of underinsurance

Published

2 years ago

5 August 2022

JeffG

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Aussie small businesses at risk of underinsurance

BIZCOVER

Australian small businesses are at risk of underinsurance, with a recent report showing that many SMEs have become complacent and have no protections in place if a negative event were to occur.

Only 43% of small businesses think they are fully covered from insurable business risks, according to the newly-released bonus chapter of the Vero SME Insurance Index 2022.

While this shows a level of understanding among small businesses about their cover levels, 34% said they have no plan if something bad were to happen, the survey found. Some others haven’t even thought about what might happen or simply choose to cross that bridge when they come to it.

“Small businesses seem to be generally aware that they may be underinsured however due to the additional cost of increasing coverage some may have made a choice to not look further into their cover due to price concerns,” says Jane Mason, Head of Product Channels and Risk at SME insurance platform BizCover,

“What’s worrying is that the dangers of underinsurance can leave the insured in a worse situation if underinsured or not insured at all.”

The conditions are set for an underinsurance crisis

From floods, bushfires, and the Covid-19 pandemic to supply chain issues and the rising cost of living, Australian small businesses have had to contend with multiple problems in recent years.

This has had an impact on the revenue of many businesses, causing some to look for ways to save money.

Vero’s report suggests that SMEs with declining revenue are less likely to say that they are completely covered and are also less likely to have a plan in place for a negative situation.

“It’s tough out there. And unfortunately, some businesses put their insurance on the chopping block,” says Mason. “But what this also says is that the businesses who are more likely to be hit by underinsurance are already struggling.”

Exacerbating the issue is that rising inflation and major supply chain disruptions are pushing up the claims costs for insurance companies, which ultimately results in higher premiums across some types of insurance.

This can put businesses who are renewing their coverage at the same levels as the year before at risk, as the cost of equipment, stock or machinery has, in many cases, increased beyond what they were originally insured for.

“What was adequate cover a year ago may not be adequate cover now because of the rising cost of materials,” says Mason.

The risk of underinsurance

For Aussie businesses, what all this means is that some could be left with a serious financial crisis by not having enough insurance to cover their loss.

For example, say you insure your business for $100k and a fire rips through your store destroying it. Once you factor in the cost to repair your business, the total bill comes out to $160k in damages. That’s $60k you’ll have to pay out of your own pocket.

Another way you can fall into the underinsurance trap is by triggering a underinsurance clause.

These clauses are designed to discourage businesses from purposely undervaluing their assets and are triggered by underinsuring usually by 20% under the true value.

Importantly, this occurs even if the damages fall within the insured amount.

So, in the above example, even if the damages were only $40k, your insurer will not cover that full amount if the clause is triggered despite you having $100k of cover.

“Many people may think that the insurer will cover it since the cost of the damages easily falls within the insured amount but that is sometimes not the case if the business is underinsured,” says Mason. “If you purchase below what your business’ true value is, you could become responsible for the share of the loss and not receive full payment for your claim.”

What can small businesses do?

While the current situation is tough, there are some things Australian small business owners can do to avoid being underinsured.

Regularly scheduling some time to consider your exposure to risks could help avoid problems later down the track. This will allow you to consider what risks your business is exposed to and think about the possible scenarios that could happen if you weren’t protected in the event of a claim.

“It’s important to insure your business for an amount that is sufficient to cover not only the tangible assets, but the cost of repairs and any other variables that might leave you out of pocket,” says Mason. “After that, consider jumping online to compare quotes so you could then decide whether the price of the cover justifies the protection.”

While reviewing your cover at renewal is a great time to consider your options, you could check in at any point throughout the year.

And with inflation and the cost of claims rising, it’s become even more crucial to regularly keep track of the actual value of your building and business contents to avoid being left with inadequate cover if a claim were to arise.

*This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording.  © 2022 BizCover Pty Limited, all rights reserved. ABN 68 127 707 975; AFSL 501769 

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Business News

Business Closures Reach Four-Year High Amid Cost Pressures

Published

5 days ago

28 November 2024

Liam

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Business Closures Reach Four-Year High Amid Cost Pressures

By Ian Rogers

Business insolvencies in Australia have hit a four-year high, with rising costs and financial pressures forcing many companies to shut their doors. According to debt-monitoring firm CreditorWatch, the business failure rate rose to 5.04% in October 2024, nearing the peak of 5.08% seen during the height of the COVID-19 pandemic in October 2020.

On an annual basis, insolvency rates are now 25% higher than pre-pandemic levels.

Why Are Businesses Struggling?

CreditorWatch identified three main reasons for the increase in insolvencies:

Higher Cost of Living: Consumers are tightening their spending, particularly on discretionary items, affecting business revenues.
Higher Cost of Doing Business: Rising electricity prices, insurance premiums, rent, and wage increases have put pressure on operating costs, especially for smaller businesses.
Tax Debt Recovery: The Australian Taxation Office (ATO) is actively pursuing $35 billion in unpaid tax debts, with many affected businesses in the hospitality and construction sectors.

Sectors Most Affected

Hospitality:
- This sector had the highest failure rate, averaging 8.5% over the past year.
- CreditorWatch predicts the rate will climb further to 9.1% in the next 12 months.
Construction:
- The construction sector’s failure rate averaged 5.3%, though it appears to be stabilizing.
- Long-standing cost pressures and reduced activity due to high interest rates have strained many businesses.

Both sectors also face the highest levels of tax debt and defaults, further limiting their financial viability.

Broader Financial Challenges

The report highlighted a rise in business-to-business payment defaults, indicating that more companies are struggling to pay their bills. Arrears have increased across most industries, reflecting the cumulative impact of rising costs and economic pressures.

Ivan Colhoun, CreditorWatch’s chief economist, remarked “Unfortunately, higher costs and interest rates are leading to more arrears and business failures. It’s an expected but unfortunate consequence of the current environment.”

Will Interest Rate Cuts Help?

The Reserve Bank of Australia (RBA) is unlikely to cut interest rates at its December meeting. Rates have remained steady at 4.35% since November 2023, with economists expecting the first cuts in the first half of 2025.

While inflation fell to 2.8% in the September quarter and unemployment held steady at 4.1% in October, the RBA has signalled it won’t reduce rates until inflation drops further or unemployment rises.

Mr. Colhoun noted that even if rates are cut, the effects will take time to materialize. However, lower inflation could provide some relief by reducing cost-of-living pressures and encouraging consumer spending, potentially boosting businesses in the medium term.

Future Uncertainties

While consumer and business confidence have shown modest improvement in recent months, challenges remain:

Global Risks: A potential shift in U.S. trade policy, including proposed tariff increases on major Australian trading partners, could create additional uncertainties for businesses.
Tax Debt Recovery Delays: The impact of delayed tax cuts and ongoing tax collection efforts could exacerbate financial strain for some businesses.

The Road Ahead

While some sectors show signs of resilience, the rising insolvency rates underscore the need for continued government and industry support. Businesses in hospitality and construction, in particular, will require targeted relief and reforms to navigate these challenging conditions.

The long-term outlook hinges on broader economic stability, interest rate adjustments, and efforts to reduce operational costs for struggling businesses.

For more local news, click here.

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Business News

Business Confidence Surges as Inflation Declines, Hitting a Two-Year High

Published

2 weeks ago

20 November 2024

Liam

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Business Confidence Surges as Inflation Declines, Hitting a Two-Year High

By Robert Heyward

Roy Morgan Business Confidence rose sharply in October 2024, increasing by 12.4 points to 106.7. This marked the most positive sentiment in over two years, driven by falling inflation and growing optimism about the Australian economy and business investment.

Key Drivers of the Increase in Confidence

The October rise in Business Confidence coincided with significant declines in inflation:

Monthly inflation: Dropped to 2.1% in September, as announced in late October, down from 2.7% in August and 3.5% in July.
Quarterly inflation: Reached 2.8% for the September quarter, its lowest level since March 2021 and within the RBA’s target range of 2–3%.

This decline in inflation has improved economic sentiment and heightened expectations of future interest rate cuts, aligning Australia with trends seen in central banks overseas.

Roy Morgan Monthly Business Confidence Australia

Improved Sentiment Across Key Indicators

Financial outlook:
- 46.3% of businesses (up 5.2 percentage points) expect to be better off financially in a year.
- Only 20.6% (down 4.4 points) anticipate being worse off.
Economic outlook:
- 59% of businesses (up 6.8 points) expect “good times” economically over the next year, the highest level since February 2022.
- Confidence about the economy over the next five years also rose, with 35.6% expecting “good times” (up 4.4 points).
Investment sentiment:
- 42.9% (up 6.9 points) believe the next 12 months is a “good time to invest” in growing their business.
- Only 35.2% (down 10.4 points) consider it a “bad time to invest,” the lowest level since June 2021.

Business Confidence by State in October 2023 vs October 2024

State-by-State Analysis

Business Confidence improved across most states, with New South Wales leading at 111.6, followed by Queensland (105.7), Western Australia (105.2), Victoria (104.4), and South Australia (102.4).

Tasmania (89.0) was the only state with confidence below the neutral level of 100, reflecting political instability within its Liberal-led government.

Industry Performance

The most confident industries in September and October included:

Public Administration & Defence: 160.1 (+48.9 points year-on-year).
Education & Training: 127.3 (+6.7 points).
Finance & Insurance: 121.6 (+20.7 points).
Recreation & Personal: 112.0 (+16.9 points).
Professional, Scientific & Technical Services: 111.0 (+11.9 points).

At the lower end, industries like Transport, Postal & Warehousing (72.6), Mining (78.3), and Agriculture (85.7) reported subdued confidence, with the Transport sector consistently lagging throughout the year.

Business Confidence for Top 5 and Bottom 5 Industries in September & October 2024

Commentary from Roy Morgan CEO Michele Levine

“Roy Morgan Business Confidence surged in October, reaching its highest level since April 2022,” Ms. Levine said.

“This increase was driven by improved optimism about the economy and growing sentiment that the next 12 months is a good time to invest in business growth. The rapid decline in inflation, combined with expectations of potential interest rate cuts, has fostered greater positivity among businesses.”

Ms. Levine also noted strong performances across major states and industries but highlighted the need for targeted support in lagging sectors such as Transport, Postal & Warehousing, and Tasmania’s struggling economy.

Conclusion

Roy Morgan Business Confidence is now just 4.5 points below its long-term average of 111.2, signalling a steady recovery in sentiment as inflation declines and businesses prepare for a potentially favourable economic environment.

For more detailed insights, the Roy Morgan Business Confidence Report is available via subscription.

For more local news, click here.

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Business News

NSW Businesses Poised to Shine at Global Expo in China

Published

3 weeks ago

14 November 2024

Liam

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NSW Businesses Poised to Shine at Global Expo in China

By Robert Hayward

The NSW Government is backing 29 businesses from the food, beverage, and health supplement sectors as they prepare to showcase their products at the China International Import Expo (CIIE) this week. The six-day trade show, China’s premier import-focused event, draws dignitaries and exhibitors from over 150 countries, offering NSW companies a direct connection to buyers, distributors, and potential customers throughout China.

As NSW’s largest two-way trading partner for nearly 20 years, China continues to be a top consumer of the state’s agricultural exports, valued at $3.6 billion for 2023/2024. NSW’s wine exports have also surged since the removal of import tariffs earlier this year, signalling continued growth opportunities, especially for the state’s premium food and beverage sector.

Last year’s CIIE saw NSW businesses secure $40 million in export deals, and the NSW Government is once again committed to facilitating new opportunities for expansion and success. Among this year’s exhibitors is Mrs Toddy’s Tonics from Sydney’s Northern Beaches, which will present its range of plant-based beverages, already stocked in Australian supermarkets.

Other participating businesses include Pablo & Rusty’s Coffee Roasters, Australian Vintage Wines, Balance Water, and Noumi. The CIIE will take place in Shanghai from 5–10 November 2024.

For more information about the event and the full list of NSW businesses that’ll be exhibiting visit here.

Minister for Industry and Trade Anoulack Chanthivong said:

“The China International Import Expo is a leading event on the global trade calendar and offers unparalleled opportunities for NSW exporters to connect with buyers and distributors in China.”

“We are excited to once again showcase the best from across NSW at this prestigious import-focused event, including meat from the Riverina, wine from the Hunter Valley, spirits from Wollongong, and health supplements made in Sydney.”

“China has a strong appetite for produce made in NSW, which is globally recognised for its high quality and safety standards, with demand only set to grow.”

Mrs Toddy’s Tonics Co-Founder Sophie Todd said:

“We’re thrilled at the opportunity to introduce a proudly Australian, female-led brand to China, and look forward to showcasing the Mrs Toddy’s Tonic range on the international stage.

“We know that Chinese consumers are becoming more health conscious and are turning to products with natural ingredients, so there’s enormous potential for a business like ours to establish a presence in this lucrative market.”

For more local news, click here.

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