What else grows when your small business does?

Your business has grown, achieved a great reputation and an established position in its selected market. So are you equipped to continue this success in an environment that's getting tougher for the small business owner? As your business has grown, your risks have increased. Has your insurance need grown too?

Although 15 per cent of small business owners admit to being either moderately or significantly underinsured, it's alarming that of the 85 per cent who believe they are adequately insured, 13 per cent don't have fire insurance and 20 per cent don't have burglary insurance. And a staggering 65 per cent aren't covered for business interruption or loss of profits.

According to the latest Cameron research*, most small business owners buy the same amount of insurance year to year, without considering changes that have occurred in the market and to their business.

For Gerard McDermott, GIO's Executive General Manager of Direct Distribution, it's concerning that small businesses could be underinsured due to the simple fact that they are unaware that their cover is insufficient - until they have a claim.

"Insurance companies are now understanding the role they play in reassessing customers' insurance needs and exploring all risk areas," Mr McDermott said.

"You have to work with your customers and make recommendations so that they can make an educated decision on their insurance."

Companies providing business insurance should review their small business clients' policies, to ensure they reflect changes like business growth. Independent assessments can determine the current replacement cost of a business, including the physical structures, equipment, stock and even the carpark.

According to research by McLarens Young International (MYI), many small businesses don't realise just how much the costs of building materials and labour have increased, and are forgetting to allow for things like removal of debris, government zoning and engineering fees.

"A recent review showed one of our clients that the replacement costs of their business had increased substantially - from $462,000 to $2.3 million," Mr McDermott said.

"The client was a family owned furniture retailer who had built a successful business over more than 25 years. These recommendations helped them understand what was truly at stake in the event of a tragedy, and allowed them to update their policy appropriately".

Small businesses should also consider their turnover and expenses, especially during busy periods like Christmas and Easter, to see what the effect would be if they couldn't operate for an extended period of time.

"The reality is that 70% of small businesses affected by major loss don't recover. Limited cash-flow can have catastrophic effects on small businesses that might not have the money to pay their bills or employees while they're out of action," Mr McDermott said.

Business interruption insurance ensures that businesses survive trading disruptions by providing income to pay ongoing expenses until they reopen their doors. So why is it that only 31% of small businesses have business interruption insurance?

"When fire damage caused a client's business to close, the owner was most thankful that he'd taken out business interruption cover about a year earlier, which meant he was able to get back on his feet and had an income while waiting to reopen his business," Mr McDermott said.

"When customers truly understand their insurance requirements, and realise how they can protect the future of their business and their employees, the majority are very receptive and appreciative."

For further information please contact:
Candice Lothian
Communications Advisor GIO Insurance
Phone: +61 (0)2 8121 9252
www.gio.com.au

Notes:
The information contained in this article does not constitute advice. For individual advice, please contact your insurer.

* Research conducted by the Cameron Research Group June 2008. The Australian Small Business Market for Financial Services: 2008. Insurance and the Small Business Market.

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