Australian Small Business and Family Enterprise Ombudsman Bruce Billson interview with Eddie Williams.
ABC Radio South-East NSW
Subject: rising cost of small business insurance
Eddie Williams
Insurance is one of the biggest upfront costs for small businesses and over the last few years it seems like that cost has only been going up. A parliamentary inquiry is looking into the impact of climate risk on insurance premiums, not only impacting homeowners and property owners, but small business as well. Since the black summer fires, insurers have paid out nearly $17 billion in natural disaster claims across the country. Bruce Billson is the Australian Small Business and Family Enterprise Ombudsman and has made a submission to this inquiry.
Bruce Billson, good morning. How much of an impact are insurance costs having on small business at the moment?
Bruce Billson
Eddie, good to be with you and your listeners. It's having an enormous impact in that we've seen, particularly in New South Wales, when small businesses are asked what are their biggest pressure points for input costs - we understand them as cost-of-living pressures in households, these are business input costs for businesses - they're citing insurance quite regularly and quite consistently. There's a couple of reasons for that. One, you touched on the simple maths, which is insurers are paying out a lot of a lot of money and they're looking to recover those funds and provision for future events with the premiums themselves and the pricing of them. There's a hardening in the insurance market. So, the appetite for insurers to come into Australia, and even for reinsurers a long way away from our shores to sort of underwrite catastrophic events is really being challenged at the present time. But I suppose the other point too, which is a little bit different from households, not that I would recommend people under insure or self-insure or choose other options. That's not an option available to most businesses, Eddie. They've got to have certain insurances to meet licensing requirements, obligations that they have to have in place so they can engage in trade or commerce. So they can't really get away from it and that's where it's really causing a great deal of pain for small and family businesses, particularly in your listening region.
Eddie Williams
And in this region which has experienced the worst of fire also flooding in recent years as well. How resilient are small businesses? How do they go in that recovery from disasters?
Bruce Billson
We've done a lot of work on this and, interestingly, only about one-in-four have an up-to-date continuity plan to deal with an event that really knocks their business off course. You know, it may be a natural disaster. It may be some event that surrounds a region that really impacts on the economy. Or it might be something that happens to the person that brings in the money, the core of the business, a health event for them. All of those things can really knock the business off track. Yet so few actually have what's called a business continuity plan. And those plans think about things not going the way you hope for, and what would you do about them. Do you have insurance? Do you have the kind of data that you know if your property is taken out by a natural disaster, that you can reach for key contact numbers? Do you have your business systems and invoicing and accounts in the cloud so that you can recover and get yourself back in shape?
And what we found was the better prepared people are clearly their prospects for recovery are improved. But it's not front of mind, and right now with 46% of businesses not making a profit, they're just trying to keep the lights on Eddie and trying to keep a pulse in the business. So some of these issues around planning and the business of running the business is probably not as front of mind for some and then when there's a disaster looming, it's action stations everywhere and that sometimes is not the time to be really planning for those sorts of events. You're really just prepping for something coming your way and hoping it's not catastrophic.
So it's really challenging at that level when it's a tight-margin, not a lot of huge profits around, lots of other pressures in the economy, lots of headwinds facing small and family businesses. And then fold in the concern around an event really taking the business out or knocking it off course, and the cost pressures involved in having proper and appropriate insurance.
Eddie Williams
On ABC South-East, and you're hearing from the Australian Small Business and Family Enterprise Ombudsman, Bruce Billson, on issues when it comes to insurance and disaster resilience for small business. There's something elsewhere in the country - the Cyclone Reinsurance Pool. You've suggested expanding that to include other disasters like fire and flood. In simple terms, how does it work? And how would it work?
Bruce Billson
The government's involved itself in the north of the country, and understandably so. Where there's a catastrophic event, a cyclone, those numbers that are paid out by insurers are eye-watering. They are enormous sums of money, because there's vast areas that are impacted, and the sums involved are very significant where property and assets are taken out.
What's happened after a series of cyclones in the north of Australia, insurers are saying, 'Yeah, nah, I don't think we want to insure people up in this part of the world because of these natural disasters.' So the government said, look, we just can't leave people to defend for themselves without any kind of insurance cover. What is needed to bring insurers back into the marketplace? And what was identified was this reinsurance pool.
So, imagine you and I are insurers. We go insure some properties down at Merimbula. Something terrible happens, it's an enormous sum of money for you and I. We as insurers then can insure against that happening, and then go and transfer some of the risk onto a reinsurance pool that steps in when those numbers are really eye-watering, and they risk bringing down our insurance arrangements, or impacting on whether we want to insure those properties in the first place, if that makes sense Eddie. So, it's like a second step in insurance for the insurers themselves to guard against really, really big claims being made. And that's what a reinsurance pool does.
That logic makes sense in Northern Australia for a range of reasons, but those reasons are starting to appear in other regions, and we should turn our mind to whether that's a mechanism to make sure businesses and households in, say the Bega Valley, have multiple options of insurers. Get some competition happening because people know that they have a reinsurance pool that's sitting behind them in the event that a really catastrophic event occurs.
And this is an example that's happened in the UK. There's parts of the UK you've seen those lifestyle TV shows, Eddie, I'm sure you're loving those if you listening to Boz Scaggs, where you can get on a canal and boat your way around. And clearly, those areas are subject to inundation by floods. And with the impact of climate change and more severe weather events, you're seeing those floods really impacting on those regions. And insurers saying, maybe this is a place where we don't want to insure properties. In the UK example, the UK government got involved and created a reinsurance pool called Flood Re, and Flood Re was there to back up those insurers in those regions in the event of a really catastrophic disaster.
Eddie Williams
Very, very briefly, consumer protections. Are they strong enough? Are there any for small business when they're dealing with insurance?
Bruce Billson
Well, the thing is, knowing exactly what's covered. This is the problem. For a lot of people, time-poor small businesses, insurance can be a pay it once, set and forget, move on with your life. But as we've seen so many times, Eddie, you pay for something called business interruption insurance, your business is comprehensively interrupted by an event, and then you're told, Oh, hang on, in the fine print, that's not covered. So that's not good enough. We're arguing for a simplification, a clarity around what kind of cover is available so people can make better and informed decisions. And then encourage people to stay close to their insurance so they know what's going on. They know what is covered, and they also know what they can do to improve their the risk so they mitigate risk, make themselves more attractive to insurers, and then hopefully have improved accessibility and affordability of that cover.
Eddie Williams
Bruce Billson, thanks very much for your time this morning.
Bruce Billson
Good to be with you. Take care.
