Inflation: How it impacts your business insurance premium
The last few years have been difficult for Australian small business owners. As we emerge from years of lockdowns and restrictions, most people are feeling the full brunt of inflation – in our shopping baskets, at the petrol pump and especially in our mortgages. Inflation can also impact both our personal and business insurance premiums, as many people are realising.
But why does inflation have such an impact on small business insurance and what can we do to lessen it?
What is inflation?
Inflation is a rise in prices over a period of time and usually shown as a percentage. Essentially it’s showing that what you could buy with ten dollars a year ago isn’t the same as what you can buy with ten dollars today.
Why inflation impacts everything you buy
In our modern world, we buy and use a variety of goods and services. Insurance is just one. And everything we buy, such as fruit and veggies, petrol, electricity and even our entertainment, is affected by inflation. This can be exacerbated by external pressures like ongoing global supply chain issues, making the effects even more harsh.
Cost of living pressures don’t discriminate. So, while the cost of living surges, so do the costs of running a business. And this includes your insurance because, as material and labour costs rise, repairing or replacing your insured assets becomes more expensive for insurers.
What specifically are the sort of things impacting my business insurance premium?
Building material and labour costs have skyrocketed
The cost of building supplies and construction materials have risen sharply due to a lack of availability, making it more costly to repair and build properties. Across the construction industry, supply disruptions associated with raw materials – on top of ongoing labour shortages – have continued to place upward pressure on the costs of property claims.
The computer chip shortage
When you insure a commercial vehicle, your insurance premiums are affected by many things including:
- fluctuations in repair costs
- the availability and costs of parts
- your car’s sum insured, and
- your claims history.
Nevertheless, it’s the current global shortage of computer chips, semiconductors and other vehicle component parts that continue to keep the cost of new and used vehicles at historic highs. A crucial component of modern cars, fewer available computer chips means more expensive cars and, as the cost of cars rise, so does the cost to repair them after accidents.
Auto repair and labour costs have risen
Due to the computer chip shortage, more people are keeping their current car to avoid the months long wait for a new car to ship to Australia. Because older cars tend to need more repairs, this increase in demand for car parts, along with global supply chain issues, means inflated car part prices. Mechanics are also facing staff shortages and increased labour costs, which helps drive up repair costs.
Why does this mean my business insurance premium increases every year?
Business insurance is usually purchased as an annual policy, meaning it renews each year. And it’s not unusual for premiums to increase at renewal. Catastrophic natural disasters such as bushfires, cyclones and floods have all contributed to an increase in the cost of cover in many places – even if there haven’t been recent natural disasters where you work or live. It’s also worth noting that premiums may rise based on the assessed risk of the business or property.
As a small business owner, how can I manage inflationary pressures while ensuring I have the cover I need?
Australia’s small business owners know they need to find a way to successfully manage the inflationary pressures on their business insurance premiums. But, it’s also important to consider how policy changes are likely to affect your business insurance cover.
Here’s a few simple ways to reduce your premium.
Choose a higher excess
The excess is the amount you agree to pay if you make a claim for an insurable event. When you opt for a higher excess, you reduce your annual premium. Before increasing your excess, think about how much you can afford to pay if you need to make a claim for an event covered by your policy.
Review your insurance policy at every renewal
It’s easy to let your policy rollover, but you should review it carefully at renewal to ensure it still suits your needs and circumstances. Maybe you have extras you no longer need, you don’t drive as much, or your building security has recently had an upgrade.
With the cost of almost everything rising, it’s tempting to reduce your insurance. Even just for now. However, it’s important any policies you hold offering financial protection for your assets – such as buildings, equipment, stock and contents – still have the correct levels of insurance.
- The different types of Business Insurance
- Business continuity planning: How to conduct a Business Impact Analysis
- Why do I need Workers Compensation Insurance?
Insurance issued by AAI Limited ABN 48 005 297 807 trading as GIO. Read the Product Disclosure Statement before buying this insurance. Go to gio.com.au for a copy. The Target Market Determination is also available. This advice has been prepared without taking into account your particular objectives, financial situation or needs, so you should consider whether it is appropriate for you before acting on it. This information is intended to be of a general nature only. We do not accept any legal responsibility for any loss incurred as a result of reliance upon it – please make your own enquiries.