Are some insurers setting small business up to fail?

Are some insurers setting small business up to fail?

I have seen some very ordinary insurance policies over the years that, in my opinion, offer inadequate protection to an insured.

One of our Sydney team shared a wording with me that he is trying to assist an Insured on. Here is his accurate summary of the issues.


First – GST included in sums insured – Hidden away on page 99 out of 108.

The Sum Insured or any amounts indicated in this policy are inclusive of Goods and Services Tax (GST).


 Secondly – See at the indemnity clause

Indemnify” (a) Where the Property is lost or destroyed:

(i) in the case of a Building, the rebuilding; or

(ii) in the case of other Property, its replacement by similar property; to a condition equal to but not better or more extensive than its condition at the time of loss or destruction; and

(b) where the Property is damaged, the repair and/or restoration of the Property to a condition substantially the same as but not better or more extensive than its condition at the time of damage.


Finally the Basis of Settlement

(2) All other Property

(a) For all other Property, we will Reinstate the Property but only if:

(i) replacement, rebuilding, or repair is carried out within a reasonable time.

This may be at another site providing our liability is not thereby increased;

(ii) any repair costs do not exceed the Reinstatement costs had the Property been totally lost, destroyed, or damaged;

(iii) a sum equal to the cost of Reinstatement has actually been incurred; and

(iv) all other insurances in respect of the Property have the same Reinstatement wording;

otherwise we will Indemnify you.

(b) We are not bound to Reinstate exactly or completely but only as circumstances permit and in a reasonably sufficient manner.

(c) Where any state, local, or other statutory authority, permits the Reinstatement of a Building but only subject to:

(i) a reduced plot ratio; or

(ii) the payment of certain fees, contributions, or impost;


I now have to explain to Insured, who suffered a total loss from a fire next door to one of his warehouses, how his policy is going to respond.


I expect the insurer will argue that they are trying to bring to market a low cost insurance policy to assist the ever increasing proportion of Australian’s who cannot afford insurance.

If this were genuine, why then require the Insured to insure the GST component of the value of the building, contents and insurable gross profit?

The insurer would typically not pay this out, or if they do, it is then treated as a Tax Input Credit. In such cases, the insurer is asking the Insured to pay premium on 1/11 of a sum insured that they can never claim.

To bury this requirement when the vast majority of the Australian market have sum insureds Net of GST right at the very back of a huge document that they know, or ought to know, the client will never read, is to me, a breach of the very fundamental principle of Utmost Good Faith.

Anyone who has started a small business knows that you put your heart and soul, a great deal if not all your savings and if you borrow, you put your house on the line. With so much at stake you need to have a policy that will leave you as little out of pocket as possible in the event of a major loss like this Insured has suffered, through I might add, no fault of his own.

To provide a coverage that will allow the insured to only offer an indemnity settlement will, I strongly suspect mean this client will be left with a significant uninsured loss. This sort of coverage was phased out of Australia back in the 1970’s.

I have already written to the product manager of this insurer on another policy but this one is even worse.

This product is one sold direct. I am not saying that all direct insurance policies are second rate, in this case, to my mind 5th rate, but I urge all business owners to think carefully what is at risk when they arrange their insurance.

It is not just a cost to your business, it is PROTECTION. It is protecting your income stream, the wages and salaries of your staff, your financial and sweat equity in the business, and if you are like me, it is your superannuation. More over it is your place in the community and the reason you get out of bed in the morning.

For all these reasons, I regard an insurance contract as the most important contract that I enter into in my business life.

As such, arranging the right insurance deserves your taking the time to understand the coverage, more importantly what is NOT covered BEFORE ANY CLAIM and the alternatives available.

This is where you get the help of a reliable, qualified insurance broker. Even with nearly 48 years experience and training in general insurance I still use an insurance broker. Please do the same.

If you need one, please visit

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