Running a trade business gets complicated pretty quickly.
You might start out as a sole trader doing smaller jobs, then before you know it you’ve got employees, subcontractors, bigger contracts, new machinery and customers asking for $20 million public liability before you’re even allowed onto site.
The problem is that insurance often gets left behind while the business grows.
I speak with trade businesses every day, and a lot of the insurance issues I see aren’t because someone has deliberately done the wrong thing. More often, the business has simply changed over time and nobody has stopped to check whether the insurance still matches what they’re actually doing.
Here are seven common mistakes worth watching out for.
1. Describing Your Business Too Simply
One of the biggest mistakes is giving a very basic description of what the business does.
Someone might say they’re an electrician, plumber, landscaper or carpenter, but that only tells part of the story.
Two electricians can have completely different risks.
One might spend all day doing residential maintenance. Another could be working in factories, substations, mining sites or on large commercial projects.
The same applies to almost every trade.
When arranging insurance, it’s worth being specific about the work you actually perform.
That can include things like:
- Residential versus commercial work
- New construction versus maintenance
- Work at heights
- Excavation or trenching
- Welding or hot works
- Design or consulting
- Work on industrial sites
- Mining, rail, energy or infrastructure work
It can feel like unnecessary detail, but those details can make a big difference when an insurer is assessing the risk.
2. Forgetting to Update Turnover
Turnover is another area that gets overlooked.
A business might take out insurance when it is turning over $150,000 a year and then grow to $500,000, $800,000 or more.
That growth is obviously a good thing, but it usually means the exposure has changed as well.
There might be more jobs, more employees, bigger contracts and more customers.
Your insurer generally needs an accurate picture of the size of the business.
If your turnover changes substantially during the year, it is worth speaking with your broker or insurer rather than simply waiting until renewal.
3. Not Declaring Subcontractors
Subcontractors are extremely common in the trades.
The problem is that business owners sometimes assume subcontractors are completely separate from their own insurance.
That is not always the case.
An insurer may want to know how much you pay subcontractors each year, what work they perform and whether they carry their own insurance.
If you suddenly go from using no subcontractors to paying $300,000 or $500,000 a year to subcontractors, that is a significant change in the business.
It should be disclosed.
You should also make sure subcontractors provide evidence of their own insurance where appropriate rather than simply taking their word for it.
4. Assuming Every Job Is Covered
This is probably one of the biggest traps.
Having public liability insurance does not automatically mean every job you take on is covered.
Insurance policies have exclusions, conditions and limitations.
These can relate to things such as:
- Maximum working heights
- Underground work
- Demolition
- Asbestos
- High-voltage work
- Railways
- Airports
- Mining
- Power generation
- Marine work
- Certain types of civil construction
A contractor might have been doing straightforward commercial work for years and then win one large contract in a completely different environment.
That one job can change the risk significantly.
Before taking on unfamiliar work, check whether your insurance is suitable for it.
It is much easier to ask the question before starting the project than after something has gone wrong.
5. Buying Insurance Based Only on Price
Everyone wants a good price. That is completely understandable.
Tradies have enough costs already between vehicles, fuel, tools, wages and materials.
But the cheapest insurance policy is not always the best value.
Two policies that both say “$20 million public liability” on the certificate can have very different conditions behind them.
One policy might suit your activities well, while another may contain exclusions that are important to your business.
Price matters, but it should be considered alongside the actual cover.
A cheap policy that does not properly cover the work you perform is not really cheap if there is a claim.
6. Not Reading Contract Insurance Requirements
Bigger customers and head contractors often have their own insurance requirements.
You might be asked to hold:
- $10 million or $20 million public liability
- Professional indemnity insurance
- Workers compensation
- Contract works insurance
- Certain clauses or endorsements
- Specific principal or contractor requirements
A Certificate of Currency might get you through the initial paperwork, but that does not necessarily mean your policy satisfies every requirement in the contract.
If a customer sends through an insurance clause that you do not understand, ask someone to review it.
Do not assume it is standard just because it is buried inside a 70-page contract.
7. Only Reviewing Insurance Once a Year
A lot can change in twelve months.
You might buy another vehicle, employ three people, start subcontracting work, purchase expensive equipment or begin working in a completely different industry.
If that happens, your insurance should change with the business.
You do not need to ring your broker every time you buy a new drill, but significant changes are worth discussing.
A simple rule is this:
If you think, “This is quite different to what we were doing when we took out the policy”, it is probably worth checking.
Insurance Should Grow With the Business
Insurance is rarely the most exciting part of running a business.
Most business owners would rather spend their time winning work, completing jobs and getting invoices paid.
But as a trade business grows, the risks usually grow with it.
Taking ten minutes every few months to think about what has changed can help avoid bigger problems later.
Ask yourself:
- Are we doing different types of work?
- Are we working at different locations?
- Has turnover increased substantially?
- Are we employing more people?
- Are we using more subcontractors?
- Have customers started asking for different insurance requirements?
If the answer to any of those questions is yes, it might be time to review your insurance as well.
The goal is not to make insurance complicated.
It is simply to make sure the cover you have still matches the business you are actually running.
