business insurance Archives

Ignorance isn’t bliss, it’s the hell of being powerless

Posted on October 26, 2018December 10, 2020 by Alleviate

There is something I need to remind myself of almost every day and it’s not pretty: I’m ignorant. It’s not on purpose, I do what I can about it, and yet I will always have a level of ignorance. Just like everyone does.

Most of us travel through life cultivating a dusty collection of known-unknowns in the corners of our minds. You know the sort. I’m talking about those issues that if you can put full awareness on them, they trigger the mental response of: I don’t know and I don’t want to know.

But to tip the old saying on its head: what you don’t know can hurt you. And if you’re an entrepreneur, then that hurt will extend to your business.

Insurance is one effective way to mitigate the risks of these unknowns. The problems arise when your insurance is itself an unknown!

Many entrepreneurs place their insurance in the too-hard basket which is, honestly, understandable. The average insurance product description can be up to 50 pages and people – especially business owners – are time poor.

Nevertheless, staying ignorant about your insurance has routinely disastrous consequences. I see them every week.

Today, we’re going to delve into ignorance. Specifically,

the common sources of ignorance about insurance
the risks you take by keeping your head in the sand
how you can mitigate powerlessness through knowledge.

Do you know what insurance is? Are you sure?

A true understanding of insurance goes beyond knowing what’s in the contract you’ve signed. Insurance is, at its core, the holistic management of risk. I say ‘management’ here because risk isn’t always something to be avoided.

Properly managed risk can be the fuel that propels your business into future success. Often, this success is of a magnitude you could not have achieved if you had not taken that first ‘risky’ step.

The right insurance enables you to take such risks because it puts a net under the trapeze. If you fall, you have a safe place to land. Knowing this, you can swing out harder and reach higher without your creativity, passion and drive being hindered.

This is the real role of business insurance. Sadly, most people are ignorant of this fact – often, even insurers and brokers get it wrong. Many people see risk as something to be avoided altogether. They focus so hard on what happens after a claim that they fail to manage the risk factors that lead up to it.

Luckily, this kind of ignorance is easily fixed. The crucial first step is to start seeing your insurance as more than just crash protection. Instead, see your insurance as ‘risk management’. Make rational engagement with risk into a tangible element of your business strategy.

And it goes without saying, get yourself an insurance broker who respects the role of risk as a key ingredient in a successful business.

Insurance premiums too good to be true? They probably are.

Insurance companies are not charities. They’re there to provide cover that’s fair, reasonable, and priced accordingly. Higher risk equals higher price – it seems so obvious.

However, I see many cases where a business’s premiums were too low and they only found out what this means when the time came to put in a claim. They suddenly face the fact that low premiums meant there were gaps in their cover. Sometimes these gaps are so big the whole business can fall through.

Conversely, if your premiums are too high it’s also a red flag. Either:

You don’t fully understand the risks associated with your business
Your insurer doesn’t understand your business’s risks, and you’re losing money, which, I think we can all agree, is never a good thing!

It can be all too easy to ignore the numbers when it comes to insurance, particularly if you feel like you’re getting bargain rates. But maintaining this particular ignorance is often catastrophic.

Businesses routinely collapse because something fairly mundane has happened whose risk they had not mitigated and which wasn’t properly covered by their insurance. It’s essential that you learn the risks associated with running your company and ensure your insurance covers them all.

If you’re unsure how much your business ought to be charged for insurance, a good preliminary check is to gather up advice from a handful of providers and brokers. I’ll happily be part of your round up.

Anyway, if their quotes don’t match what you’re currently paying, then you should work to patch the proverbial leak before it becomes a flood.

Examining your ignorance is more rewarding than you might think

Everyone is ignorant of something. None of us knows everything. It’s impossible. There’s a certain power to accepting this truth and working with it.

By examining your own confirmation bias, you’re not only mitigating the risks your company might face, you’re also giving yourself the power to strengthen your business practices. Being well-versed in risk gives you the confidence to make decisions you might otherwise shy away from. And it’s those risky decisions that make for a groundbreaking business.

Not to imply that facing your own ignorance is easy. Becoming suddenly aware of all the risks your business faces can seem like you’ve walked into a den of sleeping wolves with nothing but brittle twigs underfoot.

However, you already know that discomfort is essential for growth. Once you’re able to reframe your response, the power to be gained from your new knowledge will make the growing pains worth it.

Business insurance still the monster under your bed?

Still unsure about your business insurance? That’s fine too. The most successful entrepreneurs achieve so much because they are acutely aware of the limits of their knowledge and understand the value of engaging experts to fill those gaps. They are powerful people because they engage with their ignorance strategically.

Insurance brokers like me make it our business to understand your company – the ins, outs, ups, and downs. At Alleviate Risk we go the extra mile by focusing not only on the outcome of claims, but also the risk factors that lead up to them. Because the best incident is the one you avoid altogether.

“Risk-Reward-Repeat” is our slogan for a reason. We understand insurance for our clients so they reap the rewards of carefully managed risk.

Want to know more? Get in touch today.

How (Your) Confirmation Bias Puts Your Business At Risk

Posted on August 29, 2018January 12, 2021 by Alleviate

Don’t listen to what the economists say. We humans are not rational creatures. Our mental blindspots are huge and we’re prey to literally hundreds of cognitive biases.

These affect any decisions made by anyone – from our most level-headed leaders right through to the tinfoil-hat-wearing illiterati.

One of the most insidious of these maladaptive influences is confirmation bias.

‘But I don’t have confirmation bias! I’m as balanced as they come!’ I hear you say.

To which I reply, ‘Your belief in your lack of confirmation bias merely confirms your bias towards believing in your own imperviousness to bias’.

While pointing out confirmation biases rarely wins me friends, it’s a worthwhile exercise when you’re an insurance professional, because confirmation bias poses a serious threat to businesses.

Are you aware of how your mental tendency to agree with yourself impairs your company? Let’s look at the whole issue a bit closer.

What is Confirmation Bias?

Simply put, confirmation bias is the tendency to look for and overvalue information that supports your existing beliefs (which, by the way, may or may not be rational), while simultaneously downplaying information that contradicts those beliefs.

As humans, we really like being right. In fact, according to decision science expert Paul Windschitl, we’re 36% more concerned with being right than we are worried about being wrong.

What’s so wrong with wanting to be right?

3 Ways Confirmation Bias Affects Your Business

The reality is that you, me and anyone else is wrong about a lot of things a lot of the time. And ill-informed decision making rarely garners ideal results.

Here are three ways confirmation bias might be affecting the business decisions you make:

1. Assuming Your Opinions are Factual

The less you know about any given subject, the more likely you are to have a stronger unconscious bias towards believing you’re right about it. And the stronger your biases, the more likely you are to make an ill-informed decision.

Smart people are unusually susceptible to this. How? Let’s take the example of a talented doctor working in a hospital. She’s an expert in her own field and has become very good at backing herself. Medicine is the only career path she’s tried and she’s been highly successful. She’s worked hard and everything has gone right so far.

Therefore, she has a subconscious bias that she’ll enjoy the same success when she decides to leave the hospital and launch herself as an independent general practitioner. However, she hasn’t put anywhere near the same time, effort and money into running businesses as she put into becoming a great doctor.

She opens her GP office and things don’t go well. Yes, she’s working hard and giving quality care. She thinks she’s doing everything right, but her business just can’t catch a break for some reason.

She doesn’t know she has the confirmation bias blinkers on. Instead of perceiving the actual factors governing her business success, she works harder and harder and longer and longer hours. The business still haemorrhages money. Eventually it collapses.

To the end she still believed she was doing everything right and, simply, not working hard enough.

2. The Boss Is Always Right (Except When They’re Wrong)

Many business owners I know love the old adage ‘if it ain’t broke, don’t fix it’ because a big part of their role is ruthlessly prioritising what is broke. However, just because you think you can accurately prioritise issues within your company, doesn’t mean you’re actually doing it.

It can be really hard to take heed when people who have no vested interest in whether you succeed or fail point out some flaw in your operations.

Frontline staff are also often the first to detect a problem within a company, yet just as often they don’t want to risk telling the boss something he or she won’t want to hear. Instead of raising an issue they:

Let small problems silently grow into big ones
Create their own inefficient solutions to the problems
Skew the information they provide to management in order to make things look rosier than they really are.

By the time the problem becomes obvious to the boss, it can be too late. Everyone in senior management is blindsided and left wondering, ‘How did this go so wrong so fast!’

It went wrong when management believed its own assumption that problems it wasn’t seeing didn’t exist.

3. Past Performance Is Not An Indicator Of Future Performance

You’ve probably heard this at the end of every superannuation commercial, but have you ever stopped to consider the implications it has for your business?

One of the greatest confirmation biases that business owners face is assuming that because their business has done well in the past it is prepared to do well in the future.

Professor Raymond Nickerson, the world’s leading confirmation bias researcher, explains our tendency to preference conclusions we make early on in our business journey:

“When a person must draw a conclusion on the basis of information acquired and integrated over time, the information acquired early in the process is likely to carry more weight than that acquired later.”

Thus, we over-value the way we did things when business was going well. Just because your business experienced growth last year, it doesn’t mean you were the main factor in that growth or that the growth will naturally continue this year.

How Confirmation Bias Works And Why We All Have It

Don’t think that confirmation bias is just ego taking over. Although overconfidence plays a large role in many poor business decisions, the root cause of confirmation bias harkens back to the fight or flight response our primitive ancestors needed to stay alive.

Early humans used cognitive-processing shortcuts like fight or flight to quickly and efficiently respond to life or death circumstances.

With the stakes so high, it was always better to err on the side of caution: privileging harmful past experiences over careful evaluation of the information at hand. After all, it is better to mistake a thousand trees for a tiger and run away than to mistake one tiger for a tree and stand still!

Today the threat of being eaten alive has all but disappeared, yet the cognitive survival mechanisms that resulted from about a million years of facing such risks are still hard-wired into us. They still govern much of our day-to-day decision making.

How You Can Protect Your Business From Your Biases

The good news is there are steps to take to mitigate the negative effects of your cognitive biases for your business. Here are four:

1. Acknowledge Your Biases

Confirmation bias is particularly problematic when you either:

Genuinely don’t know it is influencing you
Believe you can’t be influenced in the first place.

As they say in AA, ‘acknowledging you have a problem is the first step’. Only when you’re aware of the role confirmation bias plays in your life can you begin to work within its effects.

No, you’ll never be able to completely quash your biases. But, if you can be a little more aware of yours than your competitors are of theirs, you’ll be 10 streets ahead.

Ironically, you have to admit how vulnerable you are in order to reduce your vulnerability.

2. Collaborate With Independent Third Parties

As an insurance broker, I have the privilege of seeing how many different businesses in many different industries operate.

It’s my job to learn the ins-and-outs of these businesses so that I can offer accurate risk advice to owners who, while exceptional at what they do, can often no longer see the forest for the trees. Often, I have uncomfortable things to say.

The business owners who continue to thrive after I’ve come on board tend to be those who fully embrace a collaborative approach.

To put it plainly, it is easier to see someone else’s biases than it is to see your own. By allowing fresh eyes to take a look at your business, you’ll recognise the blindspots that your own cognitive biases have caused.

3. Encourage Dissent

Yep, you should actively seek out opinions, attitudes and beliefs that are uncomfortable. It’s very healthy for your staff to feel comfortable speaking out. Dissent in the ranks is exactly what leaders need when a tiger is picking off troops in the rear.

Don’t let a belief in your own superior business acumen or a fear of being undermined cloud your judgement. Great leaders are receptive to criticism and questioning. They encourage critical analysis. This is how they ensure that their company’s culture is free from the toxic, compounding effects of confirmation bias.

Many multinational companies have suffered because their leaders raised an army of ‘yes men’. Lee Iacocca at Chrysler is a legendary example. Learn from their mistakes!

4. Question Your Immediate Reactions

The human brain is naturally lazy. Combatting this laziness with intentional critical thinking is one of the most effective ways to fend off the negative effects of confirmation biases.

The next time you’re in the middle of a conversation and someone makes a statement you don’t agree with, have the insight to stop and ask yourself why you don’t agree.

Is it simply because you have an alternative opinion, or are you privy to factual information the other party isn’t?

Do you have a preconceived bias on that particular subject?

If so, where does that bias stem from?

Train your brain to ask these questions and you will become more self-aware and less susceptible to unconscious bias (just don’t start thinking you’re completely infallible!).

The Bottom Line

There is a Mark Twain quote I come back to almost every day:

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.

Because of the way human brains have developed, we all have confirmation bias. How you deal with your personal biases has a huge effect on your business.

Ignore them or refuse to acknowledge their existence and you’ll be exposed to risks that could destroy you.

Accept that your decision making is influenced by invisible biases then learn how to counter them, and you’ll be able to take risks your competitors think are too ‘risky’. You’ll be able to repeat successes they couldn’t pull off even once. And you’ll reap rewards while they languish in ill-informed decisions.

In my field, the simplest proof that defying your confirmation bias works happens when I advise a client to get cover against a certain kind of incident.

I can see how their growth is continually ramping up its probability, but their confirmation bias means they can’t see this. You’d be amazed how often the incident happens within 18 months.

The choice to confront your cognitive shortcomings is yours. If you’re ready to have your eyes opened to more of the bigger picture, drop me a line at morgan.appleby@alleviate.insure or call 1300 253 848.

Business Insurance 101: The Fundamental Concepts

Posted on July 29, 2018January 12, 2021 by Alleviate

This article is for people who don’t understand business insurance, but need to. This usually means you’re in business yourself. And, if you’re in business already, then you probably already have the main thing you need to make enough sense of the whole topic of business insurance: instincts. There are two major business instincts relevant here:

Business Instinct A: Am I getting a fair deal?
Business Instinct B: Do I know enough to know if I’m getting a fair deal?

In this article, I’m going to cover the basics of business insurance so that when you’re ready to get cover, you’ll have your bearings and know the right questions to ask. I’m going to fill you in on a bit of B so you have a sharper instinct A.

What is insurance?

In short, insurance is a promise (contract) between you and your insurer wherein you both agree that if an “insurable event” happens to you in the next 365 days and you’ve paid your premiums (a fixed cost outlined in your contract), the insurer will pay you a certain amount of money to cover your losses.

However, as you might have guessed, not all promises are alike. The types of events that you can be insured against, the amount of money you have to pay your insurer every billing period, and what you can claim if the worst happens will all vary according to which insurer, policy and type of insurance you take out.

No insurance policy will ever cover every risk associated with running a business. Not only is it impossible to plan for every single thing that might happen to your company, but even if an insurer could do that their premiums would be through the roof.

This is where prudent advice and good risk management come into play. A good insurance broker will study and understand your business. Once they have a good grasp on your revenue streams, they’ll be able to explain in depth:

the cover you have
the cover you need
the cover you can probably do without.

Most importantly they will be able to tell which of your risks are uninsurable.

Then, if they’re qualified or educated to do so through some form of academic qualifications in risk management, they’ll also guide you through setting up procedures in your business to try to alleviate some of the unknowns to help keep your insurance premiums reasonable and sustainable.

How insurers decide the value of a policy

Insurance companies rely on specialists called actuaries to calculate the risks in a specific occupation or industry.

Actuaries study every single detail of a business operation and then use algorithmic models to calculate insurance premiums. For example, an actuary at a sawmill will consider many factors including (but by no means limited to):

Geographic business location
Type of timber
Age of equipment
Staff training
Construction of the business facility
Nearby emergency services support
Local environment
Historical industry data on prior claims.

Once they have these and hundreds more data points, the actuary gets number crunching. From their findings, they then advise the insurers as to what the risk profile of the operation is. Using this information, the insurer can work out what a profitable yet fair insurance premium would look like and what their policy will and will not cover.

The 7 types of insurance your business might need

Many businesses underestimate how much risk they’re exposed to every day. While most business people are aware that their company could be affected by a fire, burglary, flooding, equipment breakdowns or some kind of accident, they don’t realise that there are many other very real threats they should insure against. Let’s look at a few:

Professional liability insurance: If you’re a professional, chances are that a mistake you make could cause one of your clients financial loss – and those are the type of mistakes that preface lawsuits. This insurance isn’t just for doctors or lawyers, however. Even a marketing professional who is responsible for a brand’s image should consider taking out professional liability insurance. If you’re good at what you do, chances of a claim is unlikely. The problem is that it’s usually the legal defence costs that result in a higher expense that the actual financial loss itself.
Product liability insurance: What would you do if a product you manufacture causes property damage, injures or even kills a consumer? If you have product liability insurance, you can rest assured knowing that a personal injury or property damage lawsuit won’t destroy your business. A common misunderstanding in product-type exposures are your obligations under Australian law. In short, if you import anything for ‘resale’ under our legislation, you are deemed to be the ‘manufacturer’ of that product.
Public liability insurance: Does your business interact with the public? If so, you need to know that in the event that someone is injured or their property is damaged while you’re providing your services, you could be liable to cover their losses. Public liability insurance is designed to protect you from this.
Property insurance: Anyone whose business is located within a specific physical premises needs property insurance. This type of insurance is designed to ensure that both the building you operate out of and the equipment and inventory within it are covered in the event of a fire, flood or break-in.
WorkCover: Every Queensland business that employs workers is legally obligated to insure against workplace accidents with a WorkCover policy. Other jurisdictions have similar regulations.
Business interruption insurance: How long could your business survive an unexpected interruption to trade? One week? One month? One year? This type of insurance can help contribute to your cash flow if you experience a loss of revenue, a loss of name and good fame, or some other event that interrupts trade.
Car insurance: Taking out a policy for your work vehicles is a no-brainer. You insure your family car, so why wouldn’t you do the same for your business cars?

How business insurance differs from personal insurance

First up: personal insurance policies are a lot simpler than business policies. While people who don’t own businesses simply need to insure tangible assets like their income and property, business owners must insure both tangible and intangible assets (such as loss of trade).

For example, consider the many questions that must be asked when a loss of trade claim is being evaluated:

Who/what is responsible for the loss of trade?
Has the business also suffered a loss of reputation?
Are there measurable lost opportunities?
Is the business’s revenue straightforward and easy to average, or do recent records include windfalls?
Will purchases need to be made to restore the business to its former earning capacity?
How much revenue will be lost until those purchases are made?
How do each of these factors affect the other factors?

The more business insurance research you do, the more you realise how irreducibly complex your business is! There are so many different cogs in the machine, and they must all work together for you to make a safely insurable profit.

If your livelihood hinges upon your business working smoothly every day, I cannot overstate how important it is that you have a backup plan for if/when one of these cogs conks out!

5 tips for making your business more insurable

When it comes to buying insurance for your business, there are steps you can take to get access to more cheaper premiums. If you want the most competitive offers on the market, it’s a good idea to:

Mitigate risks: Have policies and procedures (safety training, risk management reviews, etc.) in place that reduce the likelihood of an incident happening in the first place. This is often the best and cheapest form of ‘insurance’ possible.
Improve security around your business: Installing alarms, cameras, sprinklers, digital security protocols and other security products may be a significant short-term cost to your business, but this can help you save a lot on your premiums over the long term.
Bundle your insurance: If you own multiple businesses, you may be able to get a better deal by insuring them all under one company. Just make sure that each policy provides adequate, tailored coverage for its corresponding business.
Pay in advance: As with health and vehicle insurance, you’ll pay more if you opt to pay monthly. If you can, pay your premiums for the whole year in one go.
Use a broker: Cheap insurance isn’t always good insurance, so unless you enjoy reading fine print and studying industry jargon, it’s a good idea to find an independent broker who will do the research and bargaining for you.

How you can invalidate your business insurance policy

When you take out a standard business insurance policy, you can rightfully then expect to be provided with 12 months of cover. There are, however, certain circumstances that can invalidate your insurance policy. These include:

Failure to pay premiums: If you miss a payment you may not be covered until you’re caught up again.
Deception (deliberate or accidental): If you make a false statement (whether deliberately or accidentally) about one or more aspects of your business during your application process, not only will this deception affect whether your future claims will be paid out, you may also find yourself in trouble with the law! You must always be honest with your insurer and disclose all relevant information. The rule of thumb here: if you’re not sure, get advice.
Illegal activities: In the event your business incurs a loss because of your criminal behaviour, don’t expect your insurer to pick up the slack.

In addition to these definite deal-breakers, most policies will include other exclusions. It’s important to understand what your policy will and won’t cover.

Don’t be afraid to ask your insurance broker or the insurer themselves very specific ‘what if’ questions. It’s better to pay a little bit more for the cover you need than to be paying low premiums for a policy that won’t help you out when you really need it!

Business insurance 101

So there you have it, the basics of business insurance. We have looked at what insurance really is and touched on how insurers go about offering it.

You now have a grounding in the basic types of business insurance and how the field differs from personal insurance. And last, we touched on ways you can make your business more insurable … plus a few things you can do to make it much, much less insurable.

All that lot should be enough to satisfy Business Instinct B (knowing enough to make the next step) as mentioned back in the introduction. So, what is the next step that’s going to start exercising Business Instinct A? Find an insurer or insurance broker to apply all the concepts we have talked about to your specific situation.

Get the risks right, and you’ll be able to safely repeat them … and reap the rewards. Want to know more about how business insurance is a crucial gateway to growth? Drop me a line: morgan.appleby@alleviate.insure

6 fundamental insurance questions small business owners are too polite to ask

Posted on June 29, 2018January 12, 2021 by Alleviate

Most first-time business owners are only vaguely aware their fledgling company needs insurance. And 30 seconds after the idea pops into their head, they push it right back out and decide to just hope for the best.

This is not a good strategy – actually, it’s not even a strategy. The reality is that any business owner who doesn’t want their cash flow or operating viability destroyed if a certain incident or circumstance occur needs insurance.

No one wants to look uneducated, but don’t let fear of asking a stupid question (or fear that all insurance professionals are shonky and won’t give you honest, unbiased information) stop you from understanding what business insurance is all about.

Instead, equip yourself with the knowledge you need to make informed decisions – whatever they may be!

Read time: 7 minutes.

1. Is insurance just a rip-off?

As an insurance broker, of course my answer to this question is a resounding NO. My reasons might surprise you though. In my eyes, business insurance is valuable for three key reasons:

Running a business is stressful, and insurance buys you the peace of mind that comes with knowing your operations are no longer vulnerable to certain kinds of events. You keep paying your premium and if things go down a bit or an unexpected event that would otherwise wipe you out suddenly occurs, you know you’re going to be okay. It’s a pretty simple equation: insurance = less risk = less stress. Something every business owner wants!
Getting the right business insurance forces you to spend time weighing up the unique risks and rewards for your market and operations. This type of in-depth evaluation, being half of the classic SWOT analysis, naturally reveals opportunities that your competitors are overlooking.
Lenders and big clients can more comfortably invest in you when they know you have insurance backup. When your business is insured, investors are more willing to back you, banks can offer you better lending opportunities and you’re able to make the bold moves that propel your business forward, instead of keeping you plodding along at the same old pace.

Insurance in and of itself is not a rip-off: it gives peace, prosperity and opportunity. If, however, you don’t know what to look out for, then you can get a bad deal. We’ll get to that at point 6 of this article.

2. Is buying insurance betting on failure?

Yes, it is, but hedging your bets is a smart decision.

The business people who succeed long-term are the ones who carefully examine and plan for all the reasonable positive, neutral and negative outcomes of their situation. Insurance brokers are your experts at detecting and preventing the negative scenarios.

Go to a good insurance broker for, say, public liability insurance and you’ll soon find yourself in a conversation that dives deeply into the inner workings of your business. Expect to cover:

What your business model is
What your plans for expansion are
Who your clients are
How you pay your staff
Where you live and work
What your branding is
What your differentiation strategy is.

Once you have discussed all of these with your broker, they may then say: ‘Right, now here are the things we need to look at regarding your liabilities…’

This process is important, because you can only mitigate your risks after you have identified them. And facing your risks realistically is something only business owners with a certain level of sophistication or humility can do.

3. What are the differences between an insurer, an insurance broker and an insurance agent?

In answering this question, you must first understand that people usually source insurance in one of two ways:

They’re directed to a big insurer by a comparison website or Google search
Their accountant or lawyer refers them to an insurance broker.

In the case of option 1, the big insurers will either directly offer you a range of business insurance products (that are usually quite narrow in scope), or their insurance agents will intercede and consult with you about which of their employer’s product suites is best for you. (Note: An insurance agent can only sell their employers products.)

For option 2, however, an insurance broker has an unrestricted agreement to offer you the policies of any insurer. This means they’re free to sit down with you to figure out exactly what you need and what your business’ risks are. With that info they’ll shop around multiple insurance markets on your behalf. Once your broker has done their due diligence, they’ll come back to you with quotes and a recommendation about which insurance products and providers best suit your business’s needs.

4. Do I really need an insurance broker to help me understand the fine print?

Yes…with an if; no…with a but.

On one hand, Australian law is designed to protect consumers from being misled by insurers. When it comes to the PDS – or Product Disclosure Statement, the document containing what used to be called “fine print” – there is a ‘reasonable person test’.

It means if a reasonable person reading through the terms and conditions in the PDS would make a certain assumption, then, should a matter go to court, that assumption will generally be regarded as correct based on case precedence.

This puts the onus on the insurer to make their wordings clear, understandable and readable. If an insurance dispute does go to court and the wording is ambiguous or grey, more often than not, the courts will rule in favour of the claimant. In this regard, Australians are far more protected than, say, Americans.

On the other hand, most people do not want to read through their PDS – some are more than 50 pages. Even those who do read their PDS cover to cover usually have no idea of what to look for in terms of what has been left out.

A perfect example comes from the 2011 Queensland floods which destroyed something like 25,000 houses. Many homeowners who thought they had purchased adequate insurance beforehand were left up a creek without a paddle (pardon the pun). In the summary of their cover (the part that most people read) they saw “Flood cover: Yes”. Had they read the rest of the PDS, they would have seen this cover was capped at $50,000.

People were buying this policy partly because they thought it included “flood cover”. When they went to claim, they found they technically did have flood cover, but it was hardly enough to rebuild a devastated home.

Unlike most people, insurance brokers like myself love reading the fine print. We know which exclusions to look out for, which inclusions to ask for, and which insurers to steer clear of.

The above flood scenario wouldn’t happen to someone with a good insurance broker. We’re like any other trusted professional: you count on us to give you expert advice that’s in your best interest, because happy clients are in our best interest!

5. How could an insurance broker who doesn’t know my business possibly understand my risks?

Good question. If there’s one saying the entire insurance industry agrees on it’s probably: You don’t know what you don’t know.

I’m the first to concede that most small business owners understand the ins and outs of their own company far better than I could. At the same time, I also know that most people starting out on their business journey don’t have the time or inclination needed to study all the relevant risk trends affecting them. This is what insurance brokers like myself do (exciting, I know).

So, when a business owner and an insurance broker get together, they can combine their micro and macro understandings to form a full risk profile for the business at hand.

Take, for example, a cleaning business I am currently working with. The owner knew she needed cover for the equipment her staff use and could tell me down to the dollar the financial impact she’d suffer if one of those machines was out of action. She was also acutely aware of who her most important team members were. She knew all this, but had not accounted for one of the biggest risks her business faced: a new contract to have cleaners working at a shopping centre during business hours.

Most people wouldn’t bat an eyelid at a cleaner in a shopping centre, but most insurers would immediately recognise it as a very high-risk situation. Shopping centres are one of the most common places for slip, trip and fall personal injury claims. A single claim from a member of the public could have put her out of business or even bankrupted her!

Fortunately, once this particular business owner was made fully aware of this risk, I was able to work with her to mitigate it. We didn’t just source appropriate insurance, we also gave her advice on how she could reduce the likelihood of an accident occurring (which also lowered her premiums).

Now she’s insured and can keep her significant contracts and even land bigger contracts without having to worry about the real or perceived risks her business faces.

6. What are the warning signs for a dodgy insurance broker?

Every industry has bad apples. Insurance is no exception. The two tips I give to anyone looking for the right insurance broker for their business are:

Ask other business owners for a referral. Insurance brokers are like lawyers and accountants in that much of their business comes from happy customers passing their details onto someone else. A great broker will get a lot of their business through the grapevine.
Be wary of anyone who quotes without asking you questions about your business. Some brokers will send you a price for professional indemnity or other insurance products over the phone without even asking basic questions about what you do. In general, if the insurance is cheap and easy to get, it probably isn’t ideally suited to your business.

Ask tough questions to get good insurance cover

I really believe in the old saying: nothing ventured, nothing gained. Business insurance exists specifically to reinforce the “venture” part of that old proverb and make it more dependable. That’s why I truly believe the words underneath my logo: when you can repeat risks responsibly, you really reap rewards.

If you want to know more – or ask “stupid questions” – drop me a line at morgan.appleby@alleviate.insure. Why? Because there are no stupid questions.

Confusion, credibility and underinsurance: the rocky relationship between modern travellers and insurance

Posted on May 14, 2018August 1, 2019 by Alleviate

Anyone who travels in 2018 does so in an unprecedented way.

Today, Australians explore more and further afar than ever. Everywhere we venture we carry expensive gadgets to document and navigate our journeys. As we do, we’re ditching traditional transport and accommodation models in exchange for the convenience and value of things like Uber and Airbnb.

Naturally, the way travellers view their insurance is also changing. Just look at the most popular search queries for the subject:

“Is travel insurance necessary?”
“What is travel insurance and what does it cover?”
“Is it compulsory to buy travel insurance?”
“Does travel insurance cover Airbnb?”

While business travellers and older Australians still understand the importance of being insured in a foreign country, many younger people don’t see the value of travel insurance at all. Those who do buy coverage aren’t always aware of the risks they face overseas or the limitations of their policy. Many head off with no insurance at all.

A profound shift is taking place in the travel industry, and the travel insurance industry has been slow to respond. We must adapt to the new technological, business and social landscapes modern travellers roam through. If we don’t, new, dynamic insurance concepts will take over. Apps that insure household appliances for short amounts of time outside the home are already here. It’s only a matter of time before someone finds a way to make travel insurance digitally agile. When they do, traditional travel insurance may go the way of the traveller’s cheque.

Millennials don’t value travel insurance

At Alleviate Risk, one of my target markets is millennials. Among them, I’ve noticed a lack of desire to buy travel insurance and a lack of understanding of what it actually is. Like anything in life, when we don’t understand something we mentally steer away from it. It’s not hard to see why there is no perception of value among millennials. If they do buy it, they buy it online. To do that they’re forced to read complex terms and conditions by themselves. They go through all that rigmarole and then they see no appreciable result for it.

In 2016, the Insurance Council of Australia and the Department of Foreign Affairs and Trade worked together to conduct “The Survey of Australians’ Travel Insurance Behaviour” (SATIB). Here’s one startling result from the study: one-quarter of Australians who went overseas experienced an insurable event, but many didn’t take out any insurance at all. How many?

8% of surveyed adults travelled overseas without insurance in the past 12 months
31% had travelled without insurance in the past decade
30% of travellers think you don’t need insurance if you’re visiting a developed country.

When asked why they didn’t get travel insurance, the top reasons were:

Just hadn’t thought about it
Uncertainty as to whether it was needed
Travel insurance was too expensive
Travellers were careful not to have an accident
It was too much hassle

Look at numbers 3 and 5 again. As an industry, our customers perceive our product as too expensive and too hard to buy. Yet, nothing could be further from the truth. As an insurance broker with both professional and personal experience of what can go wrong for an overseas trip (I tore my calf muscle in half the night before a 10-day ski holiday), those responses are a worry. Not just numbers 3 and 5, but especially those.

I understand where they are coming from though and would like to bring an additional reason for their aversion into the mix: the public – particularly young people – is cynical about an insurer’s willingness to:

Pay a traveller’s claims, no matter how legitimate it may be
Insure a traveller’s activities, because travel these days is far less planned than it used to be.

Of course, I am a firm believer that you get what you pay for. If a policy is cheap and narrowly worded, you can bet your bottom dollar it will have a cumbersome claims process and more exemptions than you can poke a stick at. But air travel is so cheap and accessible these days. People duck off multiple times a year on a whim for shorter and more spontaneous trips.

Our industry isn’t catering well for this type of unplanned travel. And when the industry lags so far behind consumer behaviour, the result is a loss of business for the insurer, plus inadequate or non-existent coverage for the consumers. Everyone loses.

People care about their phones, a lot

A perfect example of the travel insurance industry’s inability to keep up with customer expectations is the way insurance for smartphones, tablets and other traveller gadgetry is provided.

Compare Travel Insurance recently investigated how 20 of Australia’s market-leading travel insurers deal with smartphone claims. Their research showed “travellers can expect to lose out on at least $500 if making a claim for an Apple iPhone purchased over 12 months ago for $799”.

Once an average excess of $107 and 50% depreciation are factored into the claim, a smartphone owner can expect to get $299 for their loss – less than half of what they paid for the phone.

Furthermore, even if travellers do purchase insurance, they may find themselves entitled to no payment at all if:

They are on a monthly phone contract instead of being an outright owner
They cannot provide the phone’s IMEI code after it is lost, damaged or stolen
They cannot provide proof of ownership of the phone, such as an original receipt
They have their phone stolen from an unattended motor vehicle.

To insurers who understand risk, all of these exemptions seem reasonable. To a customer who wants to protect their most prized travel asset, these limitations make them think: “Why bother buying insurance at all, I’m not going to be covered for anything I care about!”

And to the customer attempting to make a claim only to find they’re underinsured, the question becomes: “What did I actually pay for?!”

We must explain the value of travel insurance, personally

Answering this last question is paramount to travel insurers remaining relevant and useful. But with the SATIB finding 34% of travel insurance buyers use online search as their primary research method, personalising cover to a client’s needs is no longer cutting it.

With online sources like comparison websites leading the sales race, insurers don’t get a chance to assess their client’s risk profile and explain what the best options are. Clients meanwhile can’t access a human expert to answer questions and explain policy terms.

Instead, companies just email the customer a Product Disclosure Statement and ask them to tick a box saying they understand it. This type of sale often leaves consumers blissfully ignorant of:

The risks they face overseas
The limitations of the coverage they’ve selected.

The online purchase model that’s currently popular is not meeting client’s needs. The SATIB report found:

58% of all travellers did not even look at their policy’s exclusions
26% of travellers did not look at their policy document at all
24% were not completely clear on what was covered by their policy.

As insurance advisers, our job isn’t to lump clients with the highest coverage possible. Our job is to work with travellers to explore their risk profile and use the information we glean to match the client’s needs with the right product.

This first step is critical because many travellers (particularly those under 30) have no idea what their risks are. They are not educated consumers, and therefore cannot possibly purchase the best insurance for their unique situation.

Modern travellers are dangerously unaware of the risks they face

The base level of understanding Australian consumers have regarding travel insurance is revealed by their widely held beliefs about what happens during an overseas medical emergency. The Australian government has no obligation to provide any assistance to its nationals, but despite this, the SATIB revealed that of 18-29 year olds:

52% incorrectly believe that if an Australian has a medical emergency overseas the Australian government would arrange and pay for them to get home
47% incorrectly believe that if an Australian has a medical emergency overseas, the Australian government would pay their medical bills.

This wishful thinking is not only incorrect; it’s dangerous – especially when you consider that 27% of the respondents were either not covered for medical emergencies or were not sure if they were covered.

Overseas medical emergencies are often incredibly complicated and can result in death or permanent injury if a plan for a swift rescue, transportation to an acceptable healthcare facility and access to immediate and adequate treatment is not put in place by an insurer.

Even if an injured traveller fully recovers, an overseas medical emergency can leave them in huge debt. Australians have a tendency to assume that other developed countries have healthcare billing systems that are similar to ours – not so. Only when clients hear that something as common as unanticipated appendicitis could cost them $55,000 in the USA do they begin to appreciate the importance of having the right cover.

Modern travellers want flexibility

In addition to convenient, transparent purchasing options, travellers are increasingly expecting the travel insurance industry will offer products using the mix and match approach some health insurers provide. Younger people, in particular, are less interested in paying for coverage for every possible risk they may encounter: they just want to be covered for the risks they know they’ll take.

“We’re seeing much more of that certainly from an interest standpoint, even somewhat generationally with younger travellers. They don’t want to necessarily purchase an entire package, they really just want singular benefits,” Jeff Rutledge, president and CEO of AIG Travel in Insurance Business Magazine.

Many young travellers don’t want to cover for acts of war, deep sea diving or natural disasters. They want to know they’ll be covered while riding in an Uber, or couch surfing or if they choose to make a last-minute booking.

It is these seemingly simple expectations that insurers must not only meet but be seen to meet.

The travel insurer who can convincingly communicate their willingness to cover a traveller who’s leaving next week, who’s going to stay in an Airbnb somewhere and will be using their expensive iPhone the whole time – that’s the company that’ll remain relevant. Why? Because they are giving people what they want.

To hear more about why we insurance brokers must offer the cover that enables travellers, especially business travellers, to make decisions and follow opportunities on the fly, get in contact with me: morgan.appleby@alleviate.insure. Let’s talk.