Only about four in 10 Australian small and medium-sized businesses (SMBs) surveyed in 2022 had confidence they were fully covered for insurance risks in their operations. 

Meanwhile, about a third had no plan to minimise risks. 

This article tackles three insurance myths that persist among SMBs.

Myth 1: Your business is too small to need insurance

SMBs can mistakenly believe they’re immune to a Pandora’s box of possible risks due to their:

• Size

• Number of staff

• Revenue

• Storefront size, if they have physical premises

• Assumption their home and contents insurance covers their home-based business.

However, despite those factors, SMBs still must manage risks such as:

• Fire, flood, storm, etc. damage to or destruction of business premises 

• A customer taking legal action against your product, service or professional advice, or for injuries sustained at the business premises such as slipping or tripping

• Business interruption, including supply chain bottlenecks, that creates cashflow issues

• Work, health and safety for employees

• Compliance with regulations and laws

• Online risks, scams and cyber security risks

• Breakdown or theft of equipment or a vehicle, for instance, that are crucial to your operations.

Myth 2: My subcontractors have their own cover, so I’m safe

Your subcontractor’s policy may only cover their liability, not yours, but their policy will likely cover them damaging the property of one of your clients, or doing below-standard work, for example. 

It pays to ensure that the business has adequate insurance coverage and that contractual terms between the parties allows for recovery. First, verify they’re appropriately licensed and have suitable references. Ask them what insurance they have – it needs to be at least as high as yours for professional indemnity and general liability. Ensure they also have workers' compensation if they employ people.

Be sure to have a written agreement with your subcontractors to ensure they are responsible for the quality and performance of their work and materials and how you’ll engage them. This will be useful to indemnify you if a claim is made, however be careful that you don't waive any rights of recovery against them or assume additional liability as this may breach your policy terms and conditions. By checking their work before you give it to your customer, you’re showing a duty of care.

Myth 3: General liability insurance covers everything

General liability sounds like a catch-all phrase for risks, but it does have limitations. Here’s what general liability insurance may cover:

• Claims for third-party bodily injury or property damage due to your business activities

• Third-party injuries and property damage

• Product liability claims.

A standard general liability insurance policy won’t protect you from all damage. Those excluded from the policy typically include loss or damage due to:

• Intentional acts or criminal negligence

• That which flows solely from contractual obligations

• Professional malpractice

• Libel and slander claims

• Environmental pollution

Research shows policy coverage and language differs between insurers. Check with us to find the best policy customised to your needs and circumstances.