Consider risk no matter how small Shopfront

Thursday, 01 November 2001


    Small business owners and particularly consultants in areas such as IT, communications and business services could be working with a ticking time bomb and many don’t even know it.

    A Sydney-based couple, who asked not to be named – but let's call them Sylvia and Steve – recently phoned me, beside themselves because they had been victims of circumstance and were facing a big financial loss. And that's on top of losing a valuable client and the potential business that might have flowed out of having a good, long-term relationship with an aggrieved customer. The sorry tale began when the client asked for a job to be completed within a short timeframe. The couple's business is a multimedia operation and the contract in question involved a CD to be used in an important presentation. It was understood that the CD was a vital part of an important pitch to a well-heeled potential customer. Assurances were sought and given by the multimedia firm that the completed work would arrive in Brisbane by Friday afternoon.

    Early on Thursday Sylvia contacted a private courier business, which said the product would get to Brisbane by Friday but because there was not two full working days, they legally could not give an iron-clad promise. However, they implied it would be a no-brainer. I guess you can work out the rest. The CD did not turn up on time, arriving on Monday. And the client predicably refused to pay. But that's not the end of the story. Here's the part of the yarn that you might not have banked on, especially if you are a smaller business operator. The Brisbane client is threatening to sue the multimedia operation. Steve and Sylvia were beside themselves with worry when they asked me if these people had a leg to stand on. My honest answer was that I wasn't sure, but if they could prove that delivery was promised and didn't occur and they endured an economic loss, it was thekind of battle that courts were designed to adjudicate upon. After ringing around the insurance broker fraternity, the news is that there is a lot of uncertainty out there.

    Peter Segalla from Insurance Advisory Service (NSW) said that there was no a stand-out policy to cover the predicament. He thought there might be some coverage under marine and transport insurance for business interruption, but he didn't see it really fitting their situation. "There's nothing comprehensive out there to suit all small businesses," he said. Mr Segalla pointed out that professional indemnity would cover many small businesses such as financial advisers, accountants and doctors but there are many businesses where an overall coverage could be hard to find. "Since September 11, premiums have escalated," he said. "Some have gone up 100 percent and I have heard they could go up by another 300 percent. "The pricing of these policies is now out of the reach of many small businesses." Barry Vine from IBS Broking Services in Dee Why, Sydney, considered Steve and Sylvia's issues and said that there was an information-technology policy around at the moment which might give them protection but he wasn't sure.

    "These cover a combination of general product liability but they also can have an element of economic business loss in them," he said. "But they could cost a small business $5000 a year." Vine agreed that it was not a straightforward exercise finding an insurance policy to allay all of your potential business fears. And he warned about relying too heavily on general public and product liability policies. "General liability policies often require that someone's property is damaged or some bodily injury occurs before they apply," he said. He recommends small business owners make a list of all the things that could go wrong that could land them in legal hot water, and then go to a broker to find a policy to cover those risks. This small business drama is one that I suspect many smaller proprietors have never considered in risk management strategies. In fact, I would argue that one of the big weak points of SMEs is that many of them have not even completed a risk management review. Given the potential legal and financial risks of burying your head in the sand, sensible risk management says a trip to an insurance broker could prove a positive policy.


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