Page 22 - Demo

INDUSTRY INSIGHT MARKET FAILURE HURTING SMALL BUSINESSES Far too many Australian small businesses are on the brink of collapse because they cannot secure a range of insurance products necessary for their operation. By Australian Small Business and Family Enterprise Ombudsman Kate Carnell. Insurance has become a daily stressor and a major reason for considering closure for many small businesses – retailers included. This was the overwhelming message from small business owners who contributed their feedback as part of the ‘Insurance Inquiry final report’ released by my office in December. Our inquiry found widespread market failure with regards to the availability and affordability of essential small business insurance products. This is largely because the local insurance market has been hardening for years as insurers have adapted their risk weightings to increasing threats. Throughout the inquiry, small businesses told my office they had either been denied insurance outright or their premiums have as much as tripled in just a few years, effectively pricing them out of the market. Hundreds of small businesses told my office they faced closure if insurance remains unavailable to them. Our final report makes a suite of recommendations designed to rebalance risks taken on by insurers and make small business insurance products more accessible. A major recommendation included in the report is to expand the Australian Reinsurance Pool Corporation (ARPC) to provide reinsurance for all natural disasters on commercial property insurance. Following the devastating bushfires we saw in early 2020, we found many small businesses have been struggling to get insurance for natural disasters. This has severely impacted small businesses that cannot get natural disaster coverage, due to high costs, or have been refused coverage outright. Expanding the ARPC would provide a vital increase in reinsurance options for commercial insurers, so small businesses could be covered in the event of a significant natural disaster. The inquiry also found that self- regulation in the insurance industry has failed. As it stands the insurance industry’s service and practice standards are set by voluntary codes of practice that are rarely enforced and not taken seriously by the industry. That’s why we’ve recommended a mandatory code of practice. The Australian Financial Complaints Authority should also be given additional powers to deliver dispute resolution and enforcement. The report highlights a lack of availability of public liability and professional indemnity insurance, pinpointing the unlimited nature of injury claims and potential for large damages as a key factor. We’ve recommended that Australia should follow the lead of New Zealand, which has applied statutory caps on liability for personal injury. The risk environment for public liability litigation can only change through government intervention, and the current framework of fault-based injury compensation creates uncontrollable risks for insurers and small businesses. It’s clear we need a civil liability framework that actually works. The government should also implement the Productivity Commission’s recommendation to roll out a no-fault National Injury Insurance Scheme to cover lifetime care for catastrophic injuries. Over the course of the inquiry, we heard from more than 800 small businesses, many of which told us that insurance is among their largest expenses and that many are underinsured. We also heard reports of poor conduct by insurers, including very late notice of renewal terms and price hikes, effectively forcing small businesses to accept the terms or be uninsured. Ultimately, insurance is a necessity for small businesses to operate, which is why it’s vital these products are fit-for-purpose and accessible, so they’re protected when things go wrong. About Kate Carnell AO Since being appointed Australian Small Business and Family Enterprise Ombudsman in March 2016, Kate Carnell has been a powerful advocate for small business, providing direct support to thousands of businesses involved in disputes. She has served as CEO of the Australian Chamber of Commerce and Industry, which represents 300,000 Australian businesses. She was awarded an Order of Australia for her service to the business sector. Australian Small Business and Family Enterprise Ombudsman’s office The ASBFEO's role is to support small businesses and family enterprises to enable them to grow and thrive. The ASBFEO was launched in 2016 and has two key functions: to assist and to advocate for small businesses and family enterprises. 20 CONVENIENCE WORLD JAN/FEB, 2021