Strengthening Small Business Resilience: ICA's Call for Comprehensive Insurance Reforms

Small businesses are currently grappling with a confluence of challenges, including extreme weather events, inflationary pressures, and complex regulatory environments, all of which contribute to escalating insurance premiums. Since 2020, Australia has witnessed over $4.5 billion in insurance claims due to extreme weather, while construction costs have surged by 40% during the same period. Additionally, the rapid adoption of digital technologies has exposed businesses to evolving cyber threats, with SMEs particularly vulnerable due to limited cyber literacy and the increasing sophistication of AI-driven attacks.

State-based taxes and levies further exacerbate these pressures, adding between 9% and 40% to insurance premiums. In the 2024-25 fiscal year, state governments collected $8.9 billion in insurance taxes, surpassing the industry's total profits by $1.6 billion. The ICA's submissions advocate for a coordinated effort combining industry expertise with government action to address these challenges effectively.

The proposals focus on three critical insurance lines for small businesses:

• Business Pack and Interruption Insurance: This coverage bundles property, liability, and business interruption insurance into a single product. Rising construction costs increase the risk of underinsurance, disproportionately affecting small businesses. The ICA recommends government-funded risk education programs to help businesses mitigate their exposures.
• Workers' Compensation Schemes: These schemes are under strain from a growing number of psychological injury claims, which are more complex and costly than physical injury claims. The ICA suggests investments in mental health prevention, addressing workforce shortages, and harmonizing regulations across jurisdictions to alleviate these pressures.
• Cyber Insurance: Despite the escalating threat landscape, cyber insurance uptake among small businesses remains low. The ICA proposes building on existing programs like Cyber Wardens and sharing data from mandatory ransomware reporting frameworks with insurers to strengthen collective cyber defenses.

ICA CEO Andrew Hall underscored the importance of these reforms, stating that small businesses are the engine room of Australia's economy, and affordable, accessible insurance is essential to their resilience. The submissions outline a roadmap for practical reforms, from tax relief to better risk education, that can ease costs on small businesses without compromising protections.

As the inquiry progresses, the ICA looks forward to engaging with the Committee to shape a more robust and affordable insurance landscape for Australian small businesses, ensuring they are well-equipped to navigate the complexities of the modern business environment.