Business insurance costs – soaring and ready for the spotlight

You’d be forgiven for thinking insurance is a pretty unexciting topic. For most people insurance is an irritating background character, far removed from any glamorous leading role. But perhaps we have been thinking about it in the wrong way…

In late 2020 Ai Group became concerned with the amount of member feedback we were hearing about unusual costs and problems attaining insurance. In response, we launched a small member poll and investigation into the prevalence, causes and impacts of these problems.

We released our findings in Business Insurance: Unaffordable or Unavailable, which found that insurance is a pain point for many Australian businesses with most problems the result of complex global factors, rather than domestic drivers.

Key report findings:

• More than half of businesses polled reported unusual trouble seeking insurance in the last 12 months.
• Unusually high premium growth was the most frequently reported problem faced by Australian businesses seeking insurance in the last 12 months.
• A concerning number of businesses are reporting that there is a general lack of insurance options. Because of this, some businesses reported paying an extremely high price, or not obtaining insurance at all.
• Local insurance problems are being driven by global factors.
• COVID-19 has not played a major role in current insurance difficulties but may still cause concern into the future.

So, why is this happening?

Perth based brokers KBI argue that the insurance market is cyclical, and while Australia enjoyed a ‘soft market’ for the last 5-7 years, the market is hardening noticeably. In a ‘hard market,’ rates jump up significantly (and usually quickly) with insurers pulling back cover and restricting their policies, if not declining to provide them altogether.

The kinds of global influences causing the market to harden are things like:

• Climate risks;
• Environmental, Social and Governance (ESG) Uptake; and
• Class Actions

Insurance in the spotlight

Increases of as much as 300% to business insurance premiums are not sustainable. The Australian Small Business and Family Enterprise Ombudsman’s recent report on insurance found that some small businesses and family enterprises (many of which are based in regional Australia) are considering closing their doors due to inability to access adequate insurance.

And it’s not just business feeling this pain.

Indigenous ranger groups in north-west Australia might be forced to stop their bushfire mitigation work in mid-2021 because they cannot afford the soaring fire insurance premiums in the region.

It’s certainly worrying to think that public and environmental safety may have to be compromised, and otherwise viable businesses may have to close their doors over access to adequate insurance. This feeds into what the Australian Small Business and Family Enterprise Ombudsman says, in that there will likely be extreme consequences for the Australian economy if insurance issues are left unaddressed.

So, what now?

Insurance has always had an important (and at times underrated) leading role for business. It’s a key pillar of industry and without it we’d find it almost impossible to operate, or to operate safely.

A competitive market environment where adequate and affordable insurance is within reach is in everyone’s interest – and an important foundation for Australia’s safety and economic recovery post COVID-19 pandemic.

It’s time to stop relegating insurance to the background and give it the spotlight it deserves by investigating, collaborating and innovating to come up with affordable and accessible insurance options for Australian businesses and communities.

As Ron Burgundy might say, insurance is ‘kind of a big deal’. Let’s give it the attention it deserves.