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7 Things You Need to Know About Insurance for Your Business

Insurance is a cornerstone of business risk management. It can be the difference between surviving an unexpected setback and closing your doors for good.

Yet, for many small and medium enterprises (SMEs), finding affordable, adequate cover is becoming harder than ever. A hardening insurance market, rising natural disaster costs and stricter underwriting mean premiums are climbing, coverage options are narrowing and some businesses can’t secure the protection they need. Since the Black Summer fires, insurers have paid out nearly $17 billion in natural disaster claims across Australia, which has placed upward pressure on premiums nationwide (Australian Small Business and Family Enterprise Ombudsman Bruce Billson).

Summary: The 7 Things You Need to Know

To protect your business and meet your legal and contractual obligations, you should:

Understand the types of business insurance and what they cover.
Identify the key insurance categories (property, business interruption, public liability, professional indemnity, workers compensation and cyber) so you can choose the right mix for your operations and obligations.
Assess your mandatory and high-priority insurance needs.
Determine which policies are legally or contractually required and which are essential to protect against risks that could cause severe financial harm.
Consider business interruption cover to maintain cash flow during downtime.
Protect your ability to pay staff, service debts and recover quickly if an insured event stops your business from trading.
Manage risks to improve insurability and control costs.
Implement strong risk controls to meet insurer requirements, reduce claim likelihood and improve your chances of securing cover in a hardening market.
Use an insurance broker strategically.
Leverage a broker’s expertise and market access to find suitable products, negotiate terms and review your cover regularly.
Review and update your cover regularly to avoid underinsurance.
Adjust your insurance limits at least annually to match changes in revenue, assets and liabilities, avoiding reduced payouts in a claim.
Navigate affordability and accessibility challenges with proactive planning.
Plan ahead with flexible payment options, alternative cover models and documented risk management to secure insurance in tight or costly markets.

1. Understand the Types of Business Insurance

Every business faces risks, some from the nature of its operations, others from legal or contractual requirements. The main categories of business insurance include:

Property insurance: Protects buildings, contents and stock from risks like fire, storms or malicious damage.
Business interruption insurance: Keeps income flowing if you can’t trade due to an insured event.
Public liability insurance: Covers injury or property damage to third parties.
Professional indemnity insurance: Protects against claims for professional errors or omissions.
Workers compensation: Often compulsory, covers employees injured at work.
Cyber insurance: Addresses losses and response costs from cyberattacks or data breaches.

Some sectors also require specialised cover, such as plate glass insurance under retail leases or sector-specific liability policies, also noting the importance of product liability insurance for businesses that manufacture, supply, sell, install, import, or alter tangible products. Knowing which types apply to your business is the first step to building a fit-for-purpose risk protection plan.

2. Assess Your Mandatory and High-Priority Insurance Needs

Some insurances are non-negotiable. Without public liability cover, for example, you may be legally barred from operating. Similarly, workers compensation is compulsory in most jurisdictions and certain contracts or leases will stipulate minimum cover amounts.

When assessing your insurance needs, we recommend identifying:

Mandatory products: Required by law, regulation or contracts.
High-priority products: Not compulsory but critical to managing risks that could cause severe financial harm.

When insurance costs rise, some businesses drop optional cover. One in four small businesses are dissatisfied with the affordability and availability of the insurance they need (Small Business Commissioner, Small business insurance: contemporary challenges and experiences). While trimming costs is tempting, cutting essential protection can leave you exposed to losses you cannot absorb. Small businesses also have less flexibility than households to go without cover because many policies are legally required to operate meaning cost increases hit harder (Australian Small Business and Family Enterprise Ombudsman Bruce Billson).

3. Consider Business Interruption Insurance to Maintain Cash Flow

A fire, flood or other insured event that stops you trading causes physical damage and disrupts cash flow. Business interruption insurance covers ongoing expenses such as rent, wages, utilities and debt repayments during downtime and may cover lost profit as well.

After COVID-19, more SMEs are aware of how sudden interruptions can threaten survival. A well-structured policy enables you to keep staff, service debts and recover faster. Yet, only about one in four small businesses currently have an up-to-date continuity plan to guide recovery after such events (Australian Small Business and Family Enterprise Ombudsman Bruce Billson).

For example, a restaurant with tailored business interruption insurance could survive a prolonged closure due to a kitchen fire, keeping staff employed and loan repayments on track. Without that cover, with such a prolonged closure, the business could fold.

4. Manage Risks to Improve Insurability and Control Costs

The insurance market has been hardening in recent years, meaning insurers are more selective about what they’ll cover (ASBFEO Media Release on Small Business Insurance Crisis). Premiums have risen 20-30% for public liability and up to 150% for professional indemnity since about 2017 (Small Business Commissioner, Small business insurance: contemporary challenges and experiences). In high-risk sectors, some insurers have withdrawn completely. With 46% of small businesses currently not making a profit, many are struggling to fund adequate cover while still investing in risk management (Australian Small Business and Family Enterprise Ombudsman Bruce Billson).

While individual mitigation measures may not always reduce your premium, insurers often assess risk at an industry or regional level, they are still critical for:

Meeting policy conditions.
Qualifying for cover where underwriters demand strong controls.
Reducing the likelihood and severity of claims.

Examples include installing fire protection systems, improving cybersecurity and implementing documented safety procedures. In some sectors, industry-wide risk management standards are a condition of membership in alternative cover models such as Discretionary Mutual Funds (ASBFEO Media Release on Small Business Insurance Crisis).

5. Use an Insurance Broker Strategically

Brokers act as intermediaries between you and insurers. They can help you:

Identify suitable products across multiple insurers.
Navigate complex policy terms.
Access markets or products not available directly to consumers.

However, not all brokers have the same networks or expertise and most are paid via commissions or fees from insurers, which can sometimes create real or perceived conflicts of interest. Choose a broker who is transparent about fees and experienced in your industry. A good broker will also review your cover annually to keep pace with changes in your business.

6. Review and Update Your Cover Regularly to Avoid Underinsurance

Businesses change, revenues grow, assets increase, debt levels shift. If your insurance limits don’t keep up, you risk underinsurance. Many policies have “average” or co-insurance clauses, meaning if you insure for less than the full value, any claim payout will be reduced proportionally.

Business interruption cover is particularly vulnerable to this problem. If your turnover or fixed costs have risen but your policy limits haven’t, a major event could still leave you unable to meet obligations despite having cover. Review your sums insured at least every 12 months and whenever you significantly change your operations, take on new premises or invest in major assets.

7. Navigate Affordability and Accessibility Challenges with Proactive Planning

Rising premiums, narrowing coverage and higher excesses are forcing some SMEs to reassess their viability. Some sectors, like live entertainment, adventure tourism and regional businesses in flood-prone areas, struggle to find any insurer willing to provide affordable cover. In some regions, insurers are withdrawing entirely from certain risks, mirroring the challenges that led to the Cyclone Reinsurance Pool in Northern Australia.

Strategies to manage this include:

Premium funding: Paying monthly instead of annually to spread costs.
Exploring alternative risk transfer models: Such as Discretionary Mutual Funds in sectors with acute market failures.
Engaging early with brokers: Especially before renewals, as insurers can change terms with just two weeks’ notice.
Documenting risk management measures: Even if they don’t cut premiums now, they may improve access to cover in a tightening market.

Key Takeaways

Insurance is both a legal necessity and a strategic safeguard for your business. In today’s evolving market, protecting your operations requires more than paying your premium, you need to:

Understand the range of policies available and which are essential.
Assess and prioritise cover based on your legal obligations and risk profile.
Invest in business interruption cover to protect cash flow.
Maintain and demonstrate strong risk management practices.
Work with a skilled broker to navigate complex markets.
Review and update cover regularly to match your current exposure.

Empirical Legal is a corporate advisory and technology law firm for startups, scaleups and SMEs.

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