Soaring premiums are forcing SMEs to go without insurance or reduce coverage to survive in a tough economy, an Australian Chamber of Commerce and Industry report warns.

The report, produced with the Insurance Council of Australia, says a co-ordinated national response is needed.

It urges governments to abolish taxes on insurance policies; order a Productivity Commission review of small business insurance costs; establish a national small business insurance and risk support body; work with insurers to develop tailored products; and reform civil liability laws. 

“Insurance should be an essential safety net for small businesses, not an unmanageable burden,” chamber CEO Andrew McKellar said. “Yet we hear time and again from businesses that insurance costs are spiralling out of control, with some reporting premium hikes of 30% or more in just a year.

“Others are struggling with inconsistent requirements across jurisdictions, forcing them to navigate a complex, fragmented system simply to stay compliant.”

The report says governments at all levels have a role to play on insurance affordability, access and confidence among small businesses.

“A co-ordinated reform agenda, across taxation, regulation, procurement and education, will support business continuity, reduce economic risk and help small businesses better manage their exposure.”

Going without or reducing insurance is a trade-off that carries significant long-term risks, the report warns.

“When disaster strikes, underinsurance can leave businesses without the necessary funds to recover, forcing them into insolvency. This conundrum highlights the urgent need for strategies that ensure small businesses can afford adequate coverage.”

The report says the cyclone reinsurance pool review is an opportunity to ensure the scheme evolves in a way that lifts affordability for small businesses in high-risk regions.

“While [the pool] has contributed to greater insurer participation and improved reinsurance availability, many small businesses and local governments in northern Australia continue to face affordability pressures due to a range of broader issues.”

The report says a review of civil liability laws should also be considered, after reforms in 2002 helped rein in rising public liability premiums. 

“Tort reform remains a powerful policy tool available to governments that can directly impact insurance underwriting risk and the availability of public liability insurance.

“To address the current public liability insurance constraints, state and territory governments should review and, where necessary, reform current civil liability settings to ensure a sustainable public liability insurance market in Australia where small businesses can access the coverage they need.”