Business overheads insurance still undervalued

Business overheads insurance remains one of the least understood and least familiar insurance concepts to consumers and advisers alike, but providers are continuing to stress its value to small business.

MLC’s head of protection solutions Greg Einfeld says business overheads, or business expenses, insurance plays an important role in covering the fixed costs of business when the business owner is temporarily injured or disabled and cannot work. “Costs could include rent, property taxes, costs of operating vehicles and equipment, electricity, water rates, salaries of other employees and insurance premiums. Those costs still continue even though the owner of the business may be disabled and unable to work.”

Winner of this year’s Business Overheads category in the Money Management/Dexx&r Adviser Choice Risk Awards, Einfeld says MLC’s Business Expenses product stands out from its competitors because of the simplicity of its claims process. “All the policy owner, or business owner, needs to do in order to claim is demonstrate that they are disabled, and be able to demonstrate what the ongoing costs are of running their business. They don’t need to demonstrate any loss of revenue or income, whereas many other products in the market do require that.”

Einfeld says take-up of business expenses insurance is generally lower than it could be based on business needs. He blames the gap on a lack of education.

Asgard head of insurance advice business solutions Vic Terpkos says Asgard’s Business Overheads Benefit product, which was a finalist in the awards, has experienced 20 to 25 per cent higher take up than its competitors over the past 12 months, largely because of the company’s focus on educating advisers about the product. “We’ve actually gone out to the market and illustrated to advisers where a businesses expense product can fit into their portfolio,” he says.

Terpkos says typically less than 20 per cent of business owners with income protection insurance also have business expenses insurance, but the majority of Asgard income protection policyholders also take out business expenses insurance.

BT Financial’s Westpac Business Overheads Plan and AMP’s Business Overheads Insurance were also named as finalists in this category. BT Financial senior manager life insurance David Henning says competitive pricing and loyalty discounts were the keys to success for the Westpac Business Overheads Plan.

The product also allows the salary costs of an insured person’s relatives to be insured as a business expense if the relative has been employed in the business for at least six months before the claim, Henning adds.

AMP national manager business development Chris Kirby says all business expenses insurance tended to have similar functionality, but AMP’s Business Overheads Insurance product was distinguished by its facility for paying amounts above the monthly benefit if the full amount had not been paid out in previous months.

“It’s trying to cater for the peaks and troughs, the rolling nature of a business,” he says.

Kirby says unlike income protection insurance, where a policy had an agreed value, the payment of the monthly benefit was subject to the business expenses incurred.

“It becomes a quasi-indemnity product, and on that basis some planners have expressed reservations about it. But it is a very much under valued and very much industry undersold product, and one which we need to encourage planners to take advantage of.”