Australian Small Business and Family Enterprise Ombudsman Bruce Billson interview with Leon Delaney.

Radio 2CC Canberra

Leon Delaney

The Australian Small Business and Family Enterprise Ombudsman has written today that excessive insurance premiums are causing significant harm to small businesses. Bruce Billson, good afternoon. 

Bruce Billson

Leon, great to be with you and your listeners on this glorious capital day. 

Leon Delaney

It's a beautiful day today, isn't it? It's absolutely a cracker. Now I've got to say, not only are excessive insurance premiums causing significant harm to small businesses, I think it's hurting families too, Bruce.

Bruce Billson

Absolutely. I stick pretty close to my lane, Leon, and I know lots of others are talking about consumer insurance challenges and pressures households are facing. I was just keen to make sure that the plight of small and family businesses was in that frame as well. Unlike some families that may choose, in some cases courageously choose, to under-insured and perhaps worryingly not insure at all because of the financial pressures they face, for a small business you don't actually have that option. In almost all respects, if you don't have the essential insurances that your license or the nature of your business requires, you can't engage in trade and commerce at all. So, it's one of those things that that's unavoidable. And those price rises, that tightening, that hardening of the market, is really presenting some enormous challenges for our small business men and women.

Leon Delaney

I know there’s an inquiry underway at the moment into insurance across the board, but more specifically in relation to recent natural disasters. But we've seen really quite steep increases in premiums, particularly in the last 12 months. Do you reckon they're all properly explained by those natural disasters or is there something else going on there?

Bruce Billson

Look, there's a couple of things going on. I mean, there's what's called a hardening of the market. This is where the insurance companies, the underwriters, those people that, you know, basically bankroll the insurance industry around the globe are having a hard look. There's been a spate of natural disasters that have had very significant claims attributed to them, and that's seen pressure in some quarters.

In other areas I think at times the underwriters, they can often be Lloyd's syndicates over on the other side of the world. We're a long way away and probably in some people's eyes not a really big market, and people are thinking there’s lots going on in Australia that I don't understand, maybe I invest my funds in Spain or something closer to home.

So, there's all those things happening. And in some areas when you look at claims being paid out for insurance premiums paid, there have been some years of losses. But it's not just this year, the small business men and women I talk with have been pointing to year-on-year increases. It's noteworthy even the Reserve Bank governor was pointing to insurance costs being a real driver.

Leon Delaney

Okay, hold your horses. Bruce, I wanted to jump on that bandwagon the moment Michele Bullock made those remarks about going to the hairdresser and buying insurance. And I thought, okay, sure going to the hairdresser might be discretionary, might be, but you do need to look your best. But insurance, we have no choice. They've literally got us over a barrel. If we don't buy the insurance, we're unprotected, we're vulnerable. 

Bruce Billson

And I'll take that as a comment Leon. It's not a choice that almost all businesses can exercise. They have to have it. Now, what we're seeing is in response to this hardening of the market and, you know, I think the jargon is a ‘rebalancing of their risk profile’ and these sorts of things. You're seeing premiums up, excesses - the amount you pay before you can make the claim - they have gone up in some eye watering examples. And then you see what's excluded. Certain things that they'll no longer insure. And we've seen examples of that at entertainment centres all the way through to caravan parks where the bouncing pillows are a terrifying insurance risk. And even in rural and regional New South Wales and beyond, even those traditional pubs, they might be weatherboard, they might not have had a claim for very, very, very many years, are also seeing enormous increases. 

What we also need to point out, and you've touched on with the hairdressing example - bit close to home Leon with my diminished follicle activity - we're seeing through COVID and other changes where a skilled hairdresser might think I'm not going to work in a salon now. I might convert my garage or set up a salon at home and run a home-based business. And we've also seen some examples where insurers have said, look, hang on a minute. Is this really the peaceful enjoyment of a household or is there something else going on? So that's another area where I'm urging people to talk with their brokers, talk with their insurers, to understand exactly what they're covered for and what they're not, and then understand the risks that that entails. 

Leon Delaney

I took particular umbrage at Michele Bullock though because insurance premiums, these are not price rises that are demand driven. They haven't put the prices up because all we're all rushing to buy insurance because it's fashionable. We buy the insurance we need, no more and hopefully no less. I know it’s not your field of expertise, but to suggest that we're somehow responsible for driving up inflation because we actually took out an insurance premium, I thought that was pretty rough.

Bruce Billson

Look, I didn't quite read the remarks that way. I saw it as a non-discretionary expenditure, particularly for businessmen and women. And it might not just be asset protection. I mean, we've seen this in professional indemnity where, you know, a profession is maybe checking some plans or providing advice to a bank, and when something doesn't go right, those bigger firms think, quick, who can we go after to get some money back through professional indemnity cover.

Also, public liability, where something might go wrong. We've got a particular challenge there with the amount of claims and the value of them, picking up some attributes that haven't been there in the past. There's a lot of moving parts. 

My point was, let's not lose sight of the fact if you don't have these insurances, you can't open your door as a small business and that there may be a need to think more creatively. And we've mentioned the Discretionary Mutual Fund as an example, to make sure that the protection is there that the business and their customers need and deserve. 

Leon Delaney

Well, I was going to ask you, Bruce, and you've opened the door for me. Is there a better way? 

Bruce Billson

Well, that's a different way. A Discretionary Mutual Fund is almost like a group self-insure scheme. We see them in some parts of the Australian economy now, but they're very well established internationally where a group of like businesses with a similar risk get together and think what can we do to make sure we manage and mitigate and reduce our risks, accumulate a pool of funds to pay legitimate claims, but also work together to reduce the likelihood and the cost of any claims.

That's a model we thought had some real value when we were thinking about what was happening to rural shows and the like, where, you know, a lot of the showies were struggling to get insurance for certain activities. And in other parts of the economy where that self-help, self-management, self-risk reduction in a shared self-insurance pool might well be an answer for the challenges that are being faced right now.

Leon Delaney

Okay. You've issued a call for the insurance sector to do their bit to help small business. What can the insurance businesses do and what should they do? Bearing in mind that their primary motivation is to make as much profit as they possibly can? 

Bruce Billson

Well, I think there's three things they can do, and we've seen some examples of this already.

Now, your listeners might not have ever thought about this, but when people are out there doing fire reduction burns, those professionals doing them need insurance. Now, insurers were saying, hang on a minute, what if one of these get away? What's the likely risk exposure and costs here? So, they got together with the insurers and said, what are you worried about that's pushing prices up? What can we do to reassure you about our risk management practices? And together, what can we do to make sure that you're not exposed excessively, and we can actually get affordable insurance? 

That model, I think, is a good one, where the insurance industry is sharing what they know and what worries them and what's driving the price increases and then getting alongside the small business community, often through their industry associations, to come up with a shared game plan. I think that's number one. 

Number two, be frank and clear on what policies cover what. We've seen a lot of discussion around business interruption insurance and then finding the things that people thought were insured actually aren't. So, a simpler, clearer articulation of what's covered. And that's something we've seen the Productivity Commission and others talk about. 

And three, think about these innovations that we see overseas. The Discretionary Mutual Fund, a collective self-insurance model, could well benefit from reinsurance through the formal and structured insurance sector to work hand in glove with each other. So, there's three ideas, Leon. 

Leon Delaney

Well, thank you so much, but it's probably not me that should be listening to your suggestions. It's probably the insurance companies of the world, and hopefully they do pay some attention. Bruce, thanks once again for chatting today.