Introduction
Business insurance is a mandatory risk management prerequisite for every business despite its size and sector of operation. The business entity under study in this report is a sole proprietor small business that has been in operation for over ten years in Australian of professional services sector of the economy.
Australian business environment is full of risks. Unlike big business entities, it would be very difficult for a small business to survive a calamity given the limited capital invested in the business. According to GIO Business Insurance Company, research shows that 70% of Australian small businesses would not survive a calamity such as storm or fire without proper insurance (Protecting Your Business, par. 2).
It is for this reason that the owner of the small business I surveyed found it prudent to hold insurance as a risk management strategy. Insurance protects small businesses from any potential risk that might lead to losses and the eventual collapse of the business.
Types of insurance available to small business owners in Australia
There is quite a variety of insurance available to small business owners in Australia. Depending on the needs of the business owner, the following types of insurance are applicable.
Liability Insurance
This type of insurance covers business owners against any form of liability in the course of their business operations (Insurance Quotes Compared, liability subsection). Liability insurance protects the business as well as anyone associated with it including customers.
Under the broad category of liability insurance, a business owner may opt for public liability to cover the business against any liability claims from third parties, or product liability to cover the business against liability claims regarding its product (Insurance Quotes Compared, liability subsection).
Assets and Revenue Insurance
This type of insurance gives the business a wider coverage and protects both business assets including building and contents, machinery, automobile, as well as covering the costs of business interruption or loss of profits (Insurance Quotes Compared, Assets and Revenue subsection). Assets and Revenue insurance can be broken down into the following types of insurance:
- Fire and Perils: that covers the business premises and its contents against the dangers of fire, lightning and storm. The calamities covered in this type of insurance can be either malicious or accidental.
- Auto Insurance: sometimes referred to as motor insurance covers both own property damage and injury resulting from the use of one’s vehicle as well as third party injury and property damage arising from use of the same.
- Machinery Breakdown: that covers the business against losses resulting from machinery breakdown, specifically electric motors or boilers that are used in the business.
- Business Interruption Insurance: that covers the costs of taxes and other utilities during the period the business is temporarily closed down following a calamity.
Workers Compensation
This is compulsory insurance for every employer in Australia (Pynt, p. 86). It covers costs arising from claims made by employees due to injury, illness or death during the course of duty (Insurance Quotes Compared, people subsection; Insurance Information Institute, par. 2).
Professional Indemnity
This type of insurance is specifically applicable to businesses in professional services sector of the economy. It covers the business owner against legal claims made by his clients against him because of the losses they incurred as a result of the business owners omissions or errors in his professional advice (Insurance Quotes Compared, Assets and Revenue subsection).
Political Risk insurance
This type of insurance covers the business against losses that would arise from political perils including riots, revolution and embargo.
Tax Audit
This type of insurance covers the costs that the business owner would otherwise incur because of response to ATO audit.
Reasons behind the choice of business insurance
The small business owner in this study holds an Assets and Revenue insurance. This type of insurance covers his business premises and the contents therein as well as costs of running business during business interruption period.
Given the fact that his business is located in Australia, a country prone to natural disasters such as fire and storms, his business premises stands a high risk of destruction. Building and assets therein form the backbone of every business, big or small. Should he suffer any loss due to weather calamities, then he is likely to close down his operations given the small size of his business. Besides, the cost of running a business after an interruption may be too high for this type of business.
Through his business interruption cover, he assured of a relief in the basic costs of running his business, i.e. rent, tax, and utility bills, during the period of business interruption. Therefore, the main reasons for his choice of insurance are two fold: the uncertainty of Australian physical environment, and the possibility of a business interruption following a disaster.
The relationship between business owner’s background and business insurance focus
From the consolidated data, it was revealed that the small business owner in this case study is an Asian. There is a high possibility that his ancestry influenced his choice of business insurance. Asia is a region prone to natural calamities including floods and storms. An Asset and Revenue insurance is a necessary insurance cover for every business in Asia to safeguard them against the risks of losses resulting from natural disasters.
Most likely, the business owner in the question had this preconception and hence settled for Assets and Revenue insurance to cover his business premises and contents therein as well as costs during business interruption. Yet, liability insurance and professional indemnity would be more applicable to his business given his sector of operation.
The relationship between business background and insurance focus
The small business owner in this case study specializes in professional services. Considering his type of business, there is no relationship between his business background and insurance focus, no wonder he has never lodged any insurance claim despite being in operation for over ten years. Based on his type of business, he ought to have opted for more appropriate types of insurance like Professional Indemnity to protect him against any claims that his clients would make regarding errors or omissions in his advice.
Works Cited
Insurance Information Institute. “Workers Compensation Insurance.” Insurance Information Institute Inc., 2011. Web.
Insurance Quote Compared. Business Insurance. Insurance Quotes Compared, 2009. Web.
“Protecting Your Business.” GIO, n.d. Web.
Pynt, Gregory J. Australian Insurance Law: A Fast Reference. Chatswood, N.S.W: LexisNexis Butterworths, 2008. Print.