Insurance

Insurance is often regarded as a necessary evil, but without insurance most commercial enterprises would be too risky to contemplate. Insurance is based on the principle of the ‘utmost good faith’ between the parties. Premiums are calculated on the risks involved and on the claims experience of the insurer; e.g. a construction worker runs a greater risk of injury than an office worker.

Type of Insurance
There are two types of insurance that affect business.

Fire and General Insurance; and
Life Insurance

Currently there are two compulsory insurances required in WA

Motor Vehicle Third Party Insurance; and
Workers’ Compensation Insurance.

There are seventeen authorized insurers for WorkCover in WA who will arrange all the details and your permanent Work Cover number. A copy of the Employers’ Guide should be obtained from WorkCover: Phone: (08) 9388 5555.

Comparisons
Comparing insurance products and policies has been made easier by the introduction of plain English for policy documents. Most policies differ in some way from insurer to insurer and this can make a difference when a claim is made.

For example, the ‘excess’ amount payable may vary. An excess is used to reduce the number of minor claims which, in turn, allows for a lower premium. The higher the ‘excess’ the lower the premium should be, however, this does not mean that all premiums are the same. It is a good idea to shop around provided you compare like with like.

Advisers
When obtaining insurance, three options are available:

Approach an insurance company direct.
Purchase from an agent of an insurance company.
Purchase from an insurance broker.

In choosing, remember that an agent acts for the insurance company, and a broker acts for the client. Brokers are entitled to charge a fee which may be offset by the lower premiums they obtain.

Conditions
When starting a business, insurance requirements should be high on the list of priorities. Some insurances are based on conditions to be fulfilled by the client before acceptance of the contract by the insurer. An example would be, say, a liquor store where as a condition of acceptance the owner might be required to purchase and install expensive security devices to prevent ram raids. If the client has already borrowed the maximum to purchase the business and can’t raise the money to install the security devices then, in effect, an uninsurable, high risk business will have been acquired.

Some businesses are difficult to insure because they already have a history of frequent insurance claims, and banks can be reluctant to lend for their purchase or expansion.

Claims
One of the most common errors made by the insuring public is to reduce the sum insured in order to obtain a lower premium. This can be a false economy as an insurer may reduce the settlement payout by the percentage under insured. Another false economy is to take out limited cover where the settlement payout is insufficient to rectify the loss. For example, if a policy covering a fire does not include the cost of cleaning up the site, the client can be badly out of pocket or might not be able to go ahead with reconstruction.

Whatever you may think of insurance, you should be very careful to provide full details to every question asked of you. Failure to disclose details of previous claims or accidents is a common cause of trouble with insurers.

The best advice on insurance is given by insurance providers. What may seem common sense to the insurance purchaser is not necessarily so when it comes to insurance law.

What to Insure
The main areas of concern for small business are:

personal sickness and accident or permanent disability;
liability for products, services, faulty workmanship, damage to customers and their property (public risk), infringement of rights or intellectual property;
liability to staff for Workers’ Compensation;
damage to own property by fire/smoke, fusion, accident, storm and tempest, water/flood, malicious damage, civil commotion, earthquake;
loss from theft, burglary, fraud, loss of cash, business interruption;
professional indemnity insurance for professionals and those giving advice; and
Life Assurance.

There are other areas of insurance that an insurer or broker may raise for consideration in specific circumstances such as credit insurance or key man insurance. You should not be embarrassed if at first you do not understand the complexities of insurance. Ask as many questions as necessary to gain that understanding before proceeding. If you don’t, you may put your business and your personal assets at risk.

Home Based Business
If conducting a business from home, your insurer should be advised, preferably in writing, to avoid any problems with future claims. Be aware that your business equipment or public risk is not necessarily insured by your household insurance policy.

Insuring You, "The Money Machine"
Life Assurance is one subject frequently not considered sufficiently by small business. No one has a guarantee on health or mortality, and when things go wrong a business and all one’s assets can very easily be lost. The question should be asked when a business commits to any matter, "Who will pay if I’m not here or not fit enough to work?"

Life Assurance comes in three types: permanent, term and a combination of both. Permanent costs more at the beginning but builds up reserves of cash; whereas, term is temporary and stops at a certain date, rather like car or house insurance. Permanent premiums, once contracted, remain constant. Term premiums generally increase each year with age and will be more costly in later years when the risks are higher but the need is greater.

Grievances
Should you feel you have a problem with an insurer, you may appeal first to the
Insurance Council of Australia
Phone 9322 6044 and, if still not satisfied, you can go direct to the

Claims Review Panel
Phone 9321 0222 or 1300 363 683.

For Life Assurance and Superannuation problems, you should ring the Insurance and Superannuation Commission: Phone 9481 8266.

You may obtain a copy of the Insurance Code of Practice from the Claims Review Panel Head Office in Sydney:

Phone (02) 9251 4456.

Types of Insurance

Workers’ Compensation
Public Liability
Burglary (not to be confused with theft)
Fire and Perils
Consequential Loss
Money
Motor Vehicle
Machinery Failure
Products Liability
Faulty Workmanship
Personal Accident and Sickness
Business Interruption
Goods in Transit
Professional Indemnity
Life Assurance (includes Key-man, Partnership, Permanent Disability)
Multirisks
Export Credit
Marine Insurance
Fidelity Guarantee

Always obtain a cover note if there is a risk of trading without a policy being issued in time. The Insurance Company is entitled to be paid for cover note protection. If you change your mind, always advise them immediately to cancel the cover note.