Industry expert Michael Gottlieb gives his thoughts about the first rise in small-business insurance premiums for two-and-a-half years
A newly-published report shows that Australian SME’s may have enjoyed the end of declining insurance premiums, with an increase of five points in the second quarter of the 2015/2016 financial year – the first increase seen in 10 quarters.
Inside Small Business spoke to Michael Gottlieb, Managing Director of online insurance-premium comparison site BizCover – author of the report via their quarterly Small Business Insurance Index – to find out which types of business are most affected, and why, and what he believes the future holds for small-business insurance premiums.
ISB: Is the increase an inevitable correction after such a long period of falling rates, or the start of a trend to rising premiums?
MG: I expect rates to remain low. Some insurers may be trying to push through increases, but there is so much capacity that rates are unlikely to go much higher. Commercial insurance for most businesses will continue to remain relatively flat, with good levels of competition allowing astute buyers to continue to benefit from the soft market.
ISB: Are specific classes of business experiencing higher rises than others?
MG: The greatest impact is on business insurance in the retail sector for businesses who hold stock – shops, wholesalers, restaurants etc., but also online businesses that have warehouses – as the biggest loss ratios tend to be in areas like fire and theft. The retail sector is also more complex to price due to the vast number of variables that impact the risk of that type of business, and there are relatively few insurers in Australia that have sufficient data to technically price risks based on geographical location, type of business and the physical structure of the building. Rates have increased by up to 10% in this sector.
ISB: Does Australia’s relatively small insurance market with a small number of very big players skew the market, and are there niche players who can offer better value?
MG: No, I feel we have seen robust competition in the Australian marketplace which led to insurance premiums dropping for 10 consecutive quarters. The premium increases are a result of low profitability in the commercial insurance sector. However, I believe there is enough competition to keep the market honest.
ISB: Are small businesses doing their own research and purchasing their own policies, thereby potentially paying higher premiums than they need to?
MG: I think that the majority of small businesses use a broker, but this doesn’t always mean they’ll get the best deal they possibly can. Individual brokers can’t offer the full range of policies to their small-business clients as it’s not cost-effective for them to get policy deals with every insurer in a sector where premiums are relatively low compared to those the big corporations pay. It’s worthwhile getting quotes from multiple brokers or using an online business insurance marketplace to compare insurance premiums from the widest range of providers, both large and niche.
