Australian Small Business and Family Enterprise Ombudsman Kate Carnell handed down her Insurance Inquiry final report today, finding "widespread market failure" in regards to the availability and affordability of essential small business insurance products.
“Our Insurance Inquiry has revealed we are in the grip of a national crisis that is killing small businesses,” Carnell says. “The local insurance market has been hardening for years as insurers adapt their risk weightings to increasing threats. As a result, 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.
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| "Self-regulation in the insurance industry has failed": ASBFEO Kate Carnell |
“Small businesses have told us they have 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 have told my office they face closure if insurance remains unavailable to them. In reality, it means thousands of small businesses are likely impacted and there could be dire consequences for the Australian economy if left unaddressed.”
The final report makes a number of recommendations designed to rebalance risks taken on by insurers and make small business insurance products more accessible. A major recommendation is to expand the Australian Reinsurance Pool Corporation to provide reinsurance for all natural disasters on commercial property insurance.
“Following the devastating bushfires we saw earlier this year, many small businesses are struggling to get insurance for natural disasters,” Carnell says. “This is severely impacting small businesses such as rural pubs and regional accommodation businesses that say natural disaster coverage is inaccessible, extraordinarily costly or they have been refused coverage outright.
“In the wake of the September 11 terrorist attack in the US, the government set up the Australian Reinsurance Pool Corporation, in response to a withdrawal of terrorism insurance by insurers and reinsurers. This should be expanded to cover small businesses in the event of a significant natural disaster by providing a vital increase in reinsurance options for commercial insurers.”
Carnell says the insurance industry urgently requires a mandatory Code of Practice, recommending the Australian Financial Complaints Authority (AFCA) be given additional powers to deliver dispute resolution and enforcement.
“Self-regulation in the insurance industry has failed,” she says. “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.”
The report cites a lack of availability of public liability and professional indemnity insurance, pin-pointing the unlimited nature of injury claims and potential for large damages as a key factor.
“Our report recommends Australia follow the lead of New Zealand, which has applied statutory caps on liability for personal injury,” says Carnell. “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 (NIIS) to cover lifetime care for catastrophic injuries. It’s been nine years since the Productivity Commission released its Report into Disability Care and Support and yet the NIIS is still under consideration, much to the detriment of the small business sector.”
Carnell thanked the 800-plus small businesses that took the time to complete the insurance survey, describing their feedback as both insightful and concerning. “We’ve had an overwhelming response from the small business community, many of whom told us that insurance is one of their largest expenses and a lot are under-insured. We also welcome the 20-plus submissions we received from industry stakeholders which helped in the development of this comprehensive report.
“We also heard reports of poor conduct by insurers, including very late notice of renewal terms and price hikes, effectively putting the small business in the position of accepting the terms or being uninsured. For a significant number of small businesses, insurance has become a daily stressor and a major reason for considering closure.
