Is your SME underinsured?

Business continuity can be a problem for SMEs when disaster strikes.

Small and medium-sized enterprises (SMEs) are often described as the lifeblood of the country's economy, with the SME Association of Australia claiming they comprise 95 per cent of all businesses nationwide.

However, owners face a number of challenges day to day that could interrupt the success of their operation. Unforeseen circumstances can come in many forms, whether it's a natural disaster, cyber attack, sickness or injury to key staff or system failures.

Insurance Council of Australia research shows 12.8 per cent of businesses aren't insured at all.

But are SMEs implementing risk management strategies that are effective enough to combat these problems? New research from REST Industry Super suggests many businesses may lack the necessary insurance to recover financially from a disastrous event.

In fact, the survey found 20 per cent of SME owners didn't feel their company could survive a week in the event of their unplanned absence. Meanwhile, 72 per cent of respondents believed their business would fail within 6 months if they were not at the helm.

The impact on owners

According to the REST data, 18 per cent of owners said their insurance would only cover them for a week's worth of their own living expenses, while 50 per cent would have exhausted their coverage within half a year.

Income protection, total and permanent disability policies, trauma cover and key person insurance are all options that SME owners may wish to consider if their unexpected absence from the company would hamper personal finances. Organisations should also build a comprehensive succession plan to adequately prepare for the departure of important staff.

Nevertheless, the absence of an owner is just one risk that SMEs face – and 2015 research from the Insurance Council of Australia showed 12.8 per cent of businesses aren't insured at all.

While lower than the 25.6 per cent reported in 2007, the figure indicates some SMEs would suffer significant financial hardships if calamity struck.

Business continuity and risk management. Could your business survive if you had to take an unexpected absence?

The most common reason provided for non-insurance was the inability to afford more cover (26.3 per cent), and 18.4 per cent claimed their current premiums were too high. More than 1 in 10 said arranging insurance took up too much of their time.

Formulating a risk strategy

Sadly, without the right risk management approach, businesses can quickly find themselves struggling to stay afloat, which can eventually lead to insolvency.

As such, it's important to discuss your insurance needs with qualified experts who can assess the risks to your business and find the appropriate strategy to overcome them.

Please contact a member of our team if you would like to know more.

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