business insurance discount

One big hitch? Industry questions discount campaign

Consumer group One Big Switch has secured hardworking Aussies a 40% discount on home and contents policies – and that can only be a positive insurance story, can’t it?

Not at all, say industry figures, who fear the campaign’s intense focus on price is dangerous and ill-advised. About 70,000 people signed up to the One Big Switch initiative, giving CEO David Issa – a former CEO personal insurance at IAG – the bargaining power to negotiate a bulk deal with Coles Insurance.

News Corp supported the promotion and both the newspaper publisher and One Big Switch – which has previously run similar campaigns on mortgages and electricity – receive a commission for every person who takes out a policy.

Mr Issa says spiralling home and contents premiums “hurt everyone” and force some consumers out of the market.

But National Insurance Brokers Association (NIBA) CEO Dallas Booth is leading the charge against the campaign.

“One Big Switch is a real worry for us. It gives the impression that you can easily reduce the price of insurance by 20%, 30% or 40%. The reality is the only way you can do that is by reducing the cover.”

The campaign is not a threat to brokers, he says, because it focuses on the direct market, but NIBA believes:

“people should be thinking carefully about their cover rather than chasing a cheap premium.

The outcome won’t be realised until they need to make a claim,” he says.

The headline figure of 40% is not as straightforward as it first appears. The discount contains “an exclusive 13% discount for One Big Switch members on top of other existing discounts”, the group’s website explains.

ICA supports competition in the insurance market a spokesman said.

“However, offers to consumers must be fully compliant with the law in terms of consumer disclosure and advice.

It is important that consumers fully understand the risks of switching from their existing insurance policies.

ICA has a number of initiatives underway or completed that directly relate to the issue of insurance affordability, and works closely with governments and customers to help them understand insurance risks and develop practical solutions.”

Disclaimer

Conditions apply for each policy and the information expected from you for a policy to trigger. Coverage may differ based on specific clauses in individual policies. Please ask your broker to explain the additional benefits and exclusions pertaining to your policy.

The information provided is general advice only and does not take account of your personal circumstances or needs. Please refer to our financial services guide which contains details of our services and how we are remunerated.

business insurance umbrella

Underinsurance the critical risk for SME businesses

Underinsurance is one of the most significant risks faced by SME’s when making an insurance claim, to the point where the very survival of a business is threatened if the full recovery of losses cannot be achieved.

There has been significant discussion on the topic of underinsurance in the marketplace for quite some time now. In 2005 the Australian Securities and Investments Commission (ASIC) found that one-in-six SME’s had not insured their properties and of those that were insured, it was for significantly under replacement value. While the information that underinsurance has reached critical levels is known, the main reasons for underinsurance are still to be resolved.

THE PROBLEM OF UNDERINSURANCE

Many small business owners lack an understanding of the consequences for their business in the event of a major interruption to trading such as a fire, flood or other serious adverse event. A review of a sample of 2,000 Australian small businesses revealed some common threads in relation to underinsurance and why there is a high incidence of underinsurance amongst Small to Medium Enterprises (SME’s).

The 2001 and 2004 ABS Small Business Survey estimated just under 200,000 uninsured small businesses were operating in Australia. The one-in-six figure does not account for businesses that were underinsured or not appropriately insured. Cameron Research 2006 stated that of these businesses:

  • 13% did not have fire insurance
  • 65% did not have businesses interruption insurance, and
  • 18% did not have burglary insurance.

Up to 70% of small businesses affected by a major loss do not recover.

With a combination of planning, professional support and adequate BI insurance cover, businesses could be well prepared to deal with unforeseen circumstances and the resulting consequences on business continuity.

Over the past few years, industry bodies such as the ICA and ASIC have tried to educate SME’s on being properly insured. However, the campaigns have had little impact on SME business insurance levels across Australia.

CAUSES OF UNDERINSURANCE

The most common driver of underinsurance is the perceived high cost of insurance premiums. However, this can be largely dispelled by the fact that small business spending on insurance represents less than 1% of their total expenses. The decision can be influenced by an inability on the part of the insured to fully understand the policy document and in some cases this can be exacerbated by the policy holder’s advisors.

A national survey of 1,200 consumers found that 87% believed it was the policy holder’s responsibility to decide on their level of insurance, 7% nominated the insurer and 5% believed a professional valuer should advise on the correct level of sum insured.

Disclaimer

Conditions apply for each policy and the information expected from you for a policy to trigger. Coverage may differ based on specific clauses in individual policies. Please ask your broker to explain the additional benefits and exclusions pertaining to your policy.

The information provided is general advice only and does not take account of your personal circumstances or needs. Please refer to our financial services guide which contains details of our services and how we are remunerated.

business insurance competition

Competition controls insurance premiums

The increased insurance capacity and competition that was a feature of the global market last year is showing no signs of easing, according to reports.

There is a flat-to-lower trend in premiums for Australian lines such as property, general indemnity and directors’ and officers’ insurance, with exceptions for less-attractive risk areas.

In property, rates have come under pressure following a “massive drop-off” in worldwide natural catastrophes following the spate in 2010-12. A rise in capacity fuelled “unprecedented” competition in the global property market last year.

The market has also faced pressure from businesses taking on more risk and opting for lower premiums and reduced cover, as the uncertain economic environment encourages cost-cutting drives.

Ex-Tropical Cyclone Oswald was the only major disaster to affect Australia last year amid a benign global environment. The Insurance Council of Australia (ICA) says flood and storm damage caused by Oswald in NSW and Queensland topped $1 billion.

So far this year ICA has declared catastrophes for Perth bushfires, which have cost $15 million, and Cyclone Ita, which crossed the Queensland coast earlier this month.

In general liability, rates have hardened for bushfire and offshore energy exposures, while intense competition and surplus capacity in other areas is keeping premiums flat to lower.

Capital investors are seeking the Australian insurance environment as a safe haven for their investments and are entering the market in large numbers. This has extended the soft market conditions and these circumstances won’t change until the capital flow is tempered.

Such competition means no one wants to be the first to increase rates, and these conditions are forecast to remain much the same over the next six months to a year.

Disclaimer

Conditions apply for each policy and the information expected from you for a policy to trigger. Coverage may differ based on specific clauses in individual policies. Please ask your broker to explain the additional benefits and exclusions pertaining to your policy.

The information provided is general advice only and does not take account of your personal circumstances or needs. Please refer to our financial services guide which contains details of our services and how we are remunerated.