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Reports of some insurance companies declining home and contents cover and claims to people running a business or sideline from home, or even just using their address as the business location, are causing confusion. We unpack why this might arise and what the business insurance essentials include.
It's popular practice for small businesses to start from a home base, and with the pandemic constraints many small business operators have relocated activities to the home. The insurance consideration is that home and contents insurance disclosures typically rely on declaring and often confirming that no business activity is conducted from the home, but this may not be the case as and people may forget this clause or overlook the declaration and its importance. If your home and contents insurance excludes cover on the basis of business being conducted at home failing to advise your insurers can leave you unprotected.
The Insurance Council of Australia warns that each insurer offering home and contents insurance uses different underwriting criteria which may be reflected in the extent of cover offered, and the cost.
"Depending on the nature of the business some home and contents policies will pick up the exposure," says Gallagher Client Service Manager Enza Pacetta. "If it's a home office taking up less than 20% of the floor space, with no clients coming in and out of the premises, most insurers will cover this and include it under existing home and contents policies."
But if your business deals with clients entering the premises your home insurance cover won't extend to the liabilities this involves. "The home will need to be insured separately and then you will need to look at business insurance for the contents and liability," Pacetta says.
"Most insurers, once they can see there is business insurance in place, will then cover the general building under the home and contents policy, but any equipment associated to the business will need a separate cover.
"In this instance it is generally best to seek insurance cover for both home and contents and your business from the same insurer to avoid disputes if you have to claim."
There are some businesses run from home premises that may represent an increase in risks, such as where they are producing goods, using specific machinery or engaging in activities which may increase the risks of incidents such as property damage, fire, theft and so on. The risk changes are valid scenarios that insurers consider and factor into risk exposures and policy pricing.
Some insurance providers do offer combined home and contents with business insurance as some events, such as property damage and theft, can affect both your household and your home business.
Legislation governing insurance clients' duty of disclosure was updated in October 2021 to stipulate they take reasonable care not to make misrepresentations of their risks and circumstances that might affect them.
That means that if you are using or start using your home for some aspect of doing business you need to inform your broker and insurer, or risk your home and contents cover being voided because you haven't disclosed all of the information pertinent to your cover.
Pacetta suggests people conducting businesses from the home discuss this with their insurance brokers "It is imperative to disclose all aspects of what happens at the home if there is anything outside of normal domestic activities."
If you're running a business from home in any capacity you don't want to jeopardise your ability to protect high value personal assets by the unknown risk of your policy being voided. The solution is to take active steps to check your specific home and contents cover and declaration requirements.
Advising your broker or insurer that you're conducting any aspect of business from home is essential. "This should then prompt questions to be asked to ensure that the policy you have in place is correct for what you are doing on the premises," Pacetta advises. "Some insurers are now proactively asking additional questions in their systems to ensure that this is picked up."
For the home and business owner reading the product disclosure statement before committing to a policy from a particular insurer enables you to identify grey areas to ask your broker or the insurer to explain.
While you may feel that running a bike repair service or hairdressing side hustle doesn't pose any significant risks, insurance providers view home business exposures differently.
For example, if members of the public visit your home for a business purpose and sustain an injury or their property is somehow damaged as a result of your business activities then you can be held liable. Public liability cover protects you if the other party brings a legal damages case against you, which could involve costs in the thousands of dollars.
If you make something at home that you sell commercially you can also be liable for injuries or malfunctions that cause harm, so having product liability cover is also important protection to have in place and is usually part of public liability cover.
Alternatively if you provide advice or perform a service for your clients some of them may not be happy with the result. Professional indemnity cover assists with the legal costs associated with responding to or managing legal actions claiming actual or alleged negligence in delivering a business service.
While the computer you use for your personal and business needs may be covered by your home and contents insurance the costs associated with a cyber security breach won't be. Small businesses are often particularly vulnerable to cyber threats because they don't have the sophisticated protections that that large companies use.
A standalone cyber policy can help with a number of aspects of responding to a security breach, including access to experts, help with remediation and damage control.
If you use specialised tools to produce commercial products in your home these are unlikely to be covered by your home and contents policy. Having machinery breakdown cover is critical to protecting against losses involved with replacing or repairing an item you rely on in your home based business.
Any business may be asked to respond to a tax investigation which can involve significant costs in accountancy fees so it makes sense to have tax audit insurance to cover these, rather than having to find the money from your savings or working budget.
Working with a broker to understand your risks can help you to identify the right insurances to mitigate your risks. We have Gallagher brokers nationally supporting more than 120,000 small to large businesses in Australia, in all industries, to provide professional expertise.
Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general information purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient's industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers' control.
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