The Australian Small Business and Family Enterprise (ASBFEO) Ombudsman Kate Carnell has handed down her Insurance Inquiry final report, that reveals widespread market failure in regards to the availability and affordability of essential small business insurance products.
More than 800 small businesses took part in the insurance survey, describing their feedback as both insightful and concerning Carnell said, “Our Insurance Inquiry has revealed we are in the grip of a national crisis that is killing small businesses.”
In addition to the response from small businesses, the report also took into consideration the 20-plus submissions from industry stakeholders.
“The local insurance market has been hardening for years as insurers adapt their risk weightings to increasing threats.”
“As a result, far too many Australian small businesses are on the brink of collapse because they cannot secure a range of insurance products necessary for their operation.”
“Small businesses have told us they have either been denied insurance outright or their premiums have as much as tripled in just a few years, effectively pricing them out of the market.”
“Hundreds of small businesses have told my office they face closure if insurance remains unavailable to them. In reality, it means thousands of small businesses are likely impacted and there could be dire consequences for the Australian economy if left unaddressed.”
The final report makes a suite of recommendations designed to rebalance risks taken on by insurers and make small business insurance products more accessible.
A major recommendation included in the report is to expand the Australian Reinsurance Pool Corporation (ARPC) to provide reinsurance for all natural disasters on commercial property insurance.
“In the wake of the September 11 terrorist attack in the US, the government set up the Australian Reinsurance Pool Corporation, in response to a withdrawal of terrorism insurance by insurers and reinsurers.”
“This should be expanded to cover small businesses in the event of a significant natural disaster by providing a vital increase in reinsurance options for commercial insurers.”
Carnell also said that the insurance industry urgently requires a mandatory Code of Practice, recommending the Australian Financial Complaints Authority (AFCA) be given additional powers to deliver dispute resolution and enforcement.
Carnell believes that self-regulation in the insurance industry has failed, “As it stands the insurance industry’s service and practice standards are set by voluntary codes of practice that are rarely enforced and not taken seriously by the industry.”
The report highlights a lack of availability of public liability and professional indemnity insurance, pin-pointing the unlimited nature of injury claims and potential for large damages as a key factor.
She also revealed that there have been reports of poor conduct by insurers, “Including very late notice of renewal terms and price hikes, effectively putting the small business in the position of accepting the terms or being uninsured.”
“For a significant number of small businesses, insurance has become a daily stressor and a major reason for considering closure.”
“Ultimately insurance is a necessity for small businesses to operate, which is why it is vital these products are fit-for-purpose and accessible so they are protected when things go wrong,” Carnell concluded.
You can access the entire report here.