Success creates new risks. Yet many growing SMEs unknowingly operate with significant coverage gaps simply because their insurance hasn’t kept pace with their growth.
These gaps usually stay hidden until a claim is made and by then, it’s too late. Here are five shortfalls that regularly catch successful businesses off guard.
1. Professional Indemnity Limits Frozen in Time
When you started, $1 million PI seemed adequate for $50,000 contracts. However, now you’re delivering $500,000 projects with the same $1 million cover. A major claim could easily exceed your limit, leaving you personally exposed for the difference plus legal costs.
Guideline: Your PI should be at least 2-3 times your largest contract value.
2. The Cyber Insurance You Don’t Have
Over 60% of Australian SMEs have experienced cyber incidents, yet fewer than 20% have cyber insurance (Australian Cyber Security Centre, 2024). Most assume their general liability covers cyber events. It doesn’t. A data breach can cost hundreds of thousands of dollars in forensic investigation, customer notification, regulatory fines, and business interruption – none of which your standard policies cover.
If you store customer data or process payments, cyber insurance isn’t optional, it’s essential.
3. Business Interruption Based on Old Numbers
Your BI coverage was calculated years ago based on lower revenue and lower costs. As you’ve grown, your wages, rent, and loan repayments have increased substantially. An outdated sum insured won’t come close to covering your actual exposure during an extended shutdown.
Recalculate annually based on current revenue and current fixed costs – not historical figures.
4. No Key Person Protection
If your top salesperson, technical specialist, or owner became seriously ill tomorrow, what happens to your business? Revenue drops, operations stall, and you scramble to find a replacement whilst costs continue. Key Person insurance covers lost profits, recruitment costs, and temporary replacements during this critical period.
Identify the 2-3 people whose absence would threaten your viability, then protect against that risk.
5. Directors Exposed Without D&O Cover
As you grow, you face increased regulatory obligations and employment risks. Directors can be held personally liable for breaches of duty, workplace safety failures, and various statutory obligations. Defence costs alone can run into hundreds of thousands of dollars – even if allegations are unfounded. Directors & Officers insurance protects you from personal financial ruin.
Consider D&O once you have 10+ employees, external investors, or operate in a regulated industry.
Don’t Let Growth Create Vulnerability
These gaps exist not because you’re careless, but because insurance needs change as businesses evolve. What protected you at startup rarely covers you adequately as a thriving, growing operation.
Speak with your professional insurance adviser at LA Insurance to review your coverage and ensure your protection has grown with your business. We can provide advice and options to meet your budget and needs.
References
Australian Cyber Security Centre. (2024). Annual cyber threat report 2023-2024. Australian Government. https://www.cyber.gov.au/