Ask any business owner which of their costs has seen a significant increase over the past few years and the answer will be “all of them”. The only difference will be which sector they belong to, as some have felt the impact of certain increases more than others. Wages, energy, fuel, rent, interest costs and inputs have all seen significant price hikes. The other cost that has seen a massive blowout is insurance.
ABS data shows that insurance costs grew by 16.1% in the last calendar year — a 20 year high — but we know from speaking to our South Australian Business Chamber members that many business owners have experienced far higher increases than that. The advent of the need for cyber insurance and the impact of recent floods and bushfires have compounded the problem.
The quarterly SA Business Chamber/William Buck Survey of Business Expectations found in September 2023 that only 5.5% of respondents’ insurance premiums had been unchanged since 2020. Every other respondent said their premiums had increased moderately (43%) or significantly (51.6%).
Aside from cyber and natural disaster cover, the biggest challenge for many businesses has been public liability cover. One events company told us that their staging and marquee liability insurance increased by a whopping 504% in 2022 and another 50% in 2023. Is it any wonder we are seeing music festivals disappearing from our calendar at the slightest sign of slow ticket sales?
We spoke with regional business owners recently and heard first-hand their challenges to even get insurance in high-risk areas, sometimes settling for partial cover at lofty premiums.
As one Adelaide Hills trader said, “…we are taking increased risks that do not sit comfortably. We were denied insurance last year because of the River Murray flooding and the broker ended up finding us a company that would partly insure but of course premiums were very, very high.”
The pressures being faced in the “cost of doing business”, have seen many operators change the way they tackle insurance. The 2023 Vero SME Insurance Index found that 47% of businesses have changed some aspect of their coverage in response to rising costs in the last couple of years and the report stated that many businesses being “underinsured” is becoming an increasing concern.
A business owner in the north of the state told us, “Insurance has become ridiculously expensive, even for a relatively low-risk business like ours. We have considered reducing insurance but are not in a position to self-insure while still in drought recovery mode.”
Taking the option to self-insure comes at a high risk. Few businesses can afford to do so effectively and may be placing themselves in jeopardy if they punt on building a position of coverage over time.
The absence of insurance when needed can be the difference between ongoing operations and closing the doors.
The recent story about the café damaged by storms at the Big Rocking Horse having to close due to costs incurred in lost stock and building damage is a salient reminder of how marginal survival can be for businesses in these difficult times.
The increase in business costs has placed owners in a difficult position, trying to juggle the “essential” payments with trying to find cost savings. We know of instances where insurance costs have led to operators exiting their sector.
Insurance remains a risk that has to be managed, and under-insuring or self-insuring is a gamble at best and a disaster at worst. Exploring every avenue with a broker and shopping around is still the best option to mitigate that risk. Meanwhile our policymakers need to use their powers to explore opportunities for insurance reforms that can ease the cost burden and provide security for small business operators.
