How to minimise being underinsured


Many Australians, especially those who own businesses, discover they don’t have the cover they need in the worst possible circumstances.

Insurance is one of those subjects that many people glaze over. So, just to test how knowledgeable you are about this important but unsexy topic, see how many of the following you can answer.


  1. What type of insurance can provide cover if a natural disaster results in my business having to shut down for a period of time?
  2. What type of insurance can provide cover if a client takes legal action against me? In what industries is it mandatory to have this insurance?
  3. What type of insurance can provide a payout to cover costs relating to everything from a broken window to a tax audit to a light-fingered employee?
  4. What type of insurance is legally required if you employ staff? What is the penalty for failing to take out this insurance?


  1. Business interruption insurance.
  2. Professional liability insurance (also called professional indemnity insurance). Those working in the medical, accounting, law and financial advice industries.
  3. Business insurance.
  4. Workers’ compensation insurance. It varies from state to state but you’ll typically be at risk of jail time if an employee has been injured (or worse). NSW imposes a ‘double avoided penalty’ equivalent to double the amount you should have paid in workers’ compensation premiums.

One in ten businesses have no cover

If you failed to get all (or any) of the answers right, you can take solace in being a typical Aussie. Survey after survey has shown that Australians don’t have a good grasp on what insurance policies might be relevant to them. Unsurprisingly, Australia is one of the most underinsurednations in the developed world (underinsurance is when an individual or business has no or inadequate insurance to cover their legal liabilities, or the cost of loss or damage to their assets).

The Insurance Council of Australia’s 2015 report on non-insurance in the SME sector showed a non-insurance rate of 12.8 per cent. Paul Nielsen, director and chair of the Council of Small Business Australia (COSBOA), says many SMEs are in denial. “Business owners tend to think it won’t happen to them. Because of this, some SMEs view insurance as dead money,” he says.

Remember, you get what you pay for

There are two underinsurance traps – not having any insurance at all and not having sufficient insurance. The perils of the first are self-evident. Many business owners only find out about the downsides of the second after they try to make a claim.

“The lower the premium, the narrower the cover usually”

“SMEs are often trying to save money and look to minimise the cost of insurance premiums,” says Steadfast’s John Clark. “The rise in online insurance options and price-comparison websites makes it easy to identify the cheapest policy. But the lower the premium, the narrower the cover usually. Taking the cheap option could mean that your policy isn’t there for you when you need it most.” Clark points out that even business owners prepared to pay for appropriate cover can end up in trouble if they don’t review their insurance regularly. “You need to keep your insurance broker up to date with important changes to your business, such as hiring new employees or taking on major new clients,” he says.

Clark also points out that even if your business doesn’t change much over time, it’s likely the space it operates in does. For example, five years ago ransomware attacks and data breaches weren’t something that SMEs had to worry about too much. However, in recent years the number of ransomware attacks has exploded with around half of them are now directed at small or medium-sized businesses. In February, the Federal Government introduced the Notifiable Data Breach (NDB) scheme. This requires businesses (of any size) to notify individuals affected by data breaches likely to result in serious harm. Failing to comply with the NDB scheme can attract fines of up to $2.1 million. Complying with it could result in your clients making legal claims against you.

How a broker can help 

The good news is that it’s possible to arrange the appropriate cover for your business without devoting countless hours to learning about the finer points of insurance. You can outsource the task to an insurance broker. He or she can tailor a competitively priced policy to protect against the major risks your business faces.


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