The Australian Small Business and Family Enterprise Ombudsman says that it has found widespread market failure in regards to the availability and affordability of essential small business insurance products.
“Our Insurance Inquiry has revealed we are in the grip of a national crisis that is killing small businesses,” the ombudsman Ms Kate Carnell said in her Insurance Inquiry final report.
She said, “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.”
Recommendations to make insurance accessible to SMEs
The 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 to provide reinsurance for all natural disasters on commercial property insurance. “Following the devastating bushfires we saw earlier this year, many small businesses are struggling to get insurance for natural disasters,” Ms Carnell said.
“This is severely impacting small businesses such as rural pubs and regional accommodation businesses that say natural disaster coverage is inaccessible, extraordinarily costly or they have been refused coverage outright.”
Ms Carnell also says 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. “Self-regulation in the insurance industry has failed,” Ms Carnell says. “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.”
In addition, the report highlights a lack of availability of public liability and professional indemnity insurance, pinpointing the unlimited nature of injury claims and potential for large damages as a key factor. “Public liability insurance has become almost impossible for small businesses to obtain, particularly those that offer recreational activities such as caravan parks, quad bike tours or jet boating to name a few,” Ms Carnell said.
“Our report recommends Australia follow the lead of New Zealand, which has applied statutory caps on liability for personal injury. The risk environment for public liability litigation can only change through government intervention and the current framework of fault-based injury compensation creates uncontrollable risks for insurers and small businesses.”
The ombudsman also says that the government should roll out a no-fault National Injury Insurance Scheme (NIIS) to cover lifetime care for catastrophic injuries.
The report was issued after the Ombudsman launched an inquiry in July to investigate the practices of the insurance industry that impact small businesses and consider whether small business insurance products are fit for purpose.