Could an insurance claim ruin your business?

By Sarah Stowe | 15 Nov 2019 View comments

A staggering 87 per cent of small business owners agree that an insurance claim could damage or even ruin their business.

While the latest survey reveals many small business owners would turn to personal debt to cope with an insurance claim, for some even this isn’t an option.

Of the more than 600 SMEs surveyed in the QBE SMEs and Insurance: A pulse check on risk trends for businesses report, launched today, 33 per cent admitting to having no idea how they would finance the costs of a claim.

Don’t let an insurance claim ruin your business

And yet despite these statistics, 62 per cent of SMEs reveal they are unlikely to have the right insurance in place to protect their business.

It’s a problem caused by not understanding all the risks, suggests Aaron Gavin, general manager, Small to Medium Enterprises (SME), QBE Australia.

Gavin said small business owners tend to think about insuring tangible assets like the business property or electronic equipment first.

“It’s important to understand all the risks your business faces to ensure you’re protected should someone bring a compensation claim against you for an event connected with your business, even if that incident is not your fault,” he said.

“This can include a customer being hurt on your business premises, a competitor claiming you stole their ideas, or a customer claiming a breach of privacy.”

Liability insurance is often overlooked, he pointed out.

Data collected from 2015 to April 2019 by QBE reveals in the food, beverage and accommodation sector, average property damage due to contamination is $15,394. An average bodily injury claim related to machinery is $41,877 but has cost up to $1,061,382.

The data shows the 10 most common liability incidents that can impact a business, along with the 10 most expensive liability claims.

Most common liability incidents

  1. Faulty workmanship
  2. Accidental damage to the prorperty or others
  3. Water damage
  4. Impact damage by vehicle
  5. Slip, trip or fall
  6. Excavation and drilling damage
  7. Impact by object injury
  8. Lifting, carrying or putting down objects
  9. Faulty product
  10. Fire

Most expensive liability claims

  1. Injury to labour hire personnel
  2. Injury to third party worker
  3. Electrocution
  4. Fire
  5. Defamation/slander
  6. Trapped by machinery or equipment
  7. Physical assault injury
  8. Faulty product
  9. Slip and fall injury
  10. Impact by object injury

Insurance mistakes

Common insurance errors among small businesses are under-insuring property, and failing to insure against business interruption.

“If a fire goes through your business premises it can take weeks to get back up and running, which means weeks of lost turnover if you don’t have business interruption cover. For small businesses, that could mean the difference between staying afloat or going bust. 

“We’ve seen plenty of examples where we were able to reinstate the property, and legal liability was covered, but because the business couldn’t continue trading and cash flow was impacted, it lost customers and ultimately went out of business,” said Gavin.

He pointed out the importance of regularly reviewing business insurance policies, particularly as a firm grows.

 “Factors like equipment upgrades, new premises, and new employees can all mean your old insurance policy no longer fits your needs. It’s important to consult with your insurer or broker to keep a check on whether your insurance coverage is still appropriate as your business changes.”