Risk of Regret: Business Liability & Professional Indemnity Report 2017
THE REPORT IS BASED ON INTERVIEWS WITH SOME 300 SMES AND LARGE CORPORATIONS IN MALAYSIA THAT TOOK PLACE IN APRIL AND MAY 2017. IT LOOKS AT BOTH CURRENT AND FUTURE BUSINESS CHALLENGES AND OPPORTUNITIES, AS WELL AS HOW WELL-PREPARED COMPANIES ARE TO DEAL WI
More than a quarter of companies said they have experienced legal and regulatory compliance issues (28%) and loss of income due to business interruption (27%) over the past 12 months. Another 24% reported staff injuries, 22% suffered damaged or lost inventory, and 21% experienced loss of income due to equipment breakdown. Many Malaysian companies do not take out business liability insurance until after something happens – putting their business and customers at risk, while only 64% of companies know what business liability insurance is, out of which only half (53%) intend to purchase. “With more companies experiencing legal and regulatory compliance issues in the past year, business liability insurance is becoming increasingly important for businesses,” said Leo Zanolini, CEO, QBE Insurance Malaysia. Less than half (45%) of companies own this type of insurance. Awareness is also low for public and product liability insurance at 31% and professional indemnity insurance at 27%. The business slowdown is expected to continue over the next 12 months according to 37% of respondents, and 28% expect technology advancement and innovation, especially large companies at 32% compared to 24% of SMEs.
CURRENT BUSINESS CHALLENGES
Half of SMEs are experiencing business profitability challenges, compared to large companies who see technology and systems (37%) and new regulations and laws (31%) as greater challenges. Regardless of company size, businesses are generally facing similar challenges and have experienced similar business risks in the past 12 months. Large companies more likely have experienced legal regulatory compliance issues, loss of income due to business interruption and staff injuries. Damaged business property seems to be more of a challenge too.
Many companies take out insurance only after experiencing an incident, or not at all – putting their business and customers at risk. QBE’s research reveals the trend of companies reacting after an incident is common across a range of business risks. Of the businesses that had public or third-party liability issues due to accidents or business negligence, 38% took out business liability insurance only after the incident occurred, and 6% took no action at all. Companies with other problems had a similar post-event reaction – business liability insurance was purchased afterwards by 24% of companies who experienced customer or payment internet fraud; 22% who had sensitive data stolen over the internet; 22% whose staff were injured at work, and 20% of companies who experienced public or third party liability product and service issues. “While many businesses are reacting after an incident, we were also surprised by the number of businesses who said they took no protection action whatsoever after an incident,” said Zanolini. One in five (19%) Malaysian companies who experienced public or third party liability issues due to products or services took no action at all. Another 18% took no action after experiencing fraudulent payments over the internet.
Awareness of general business insurance is high, but awareness of business liability and professional indemnity insurance is low. The report also revealed a gap between awareness and usage of general business insurance and business liability insurance. Nearly all Malaysian respondents (96%) have some form of business insurance, including general accident and employees compensation cover. However, awareness and take up of business liability insurance protection is far lower. Less than half (45%) of Malaysian SMEs and large companies currently have business liability cover, and 64% of businesses are aware of it. The research also found that both awareness and usage for professional indemnity insurance further decreases at 27% awareness and only 19% usage. Public and product liability insurance stands at 31% and 21% respectively, while the figures for director’s and officer’s liability insurance fall to 17% awareness and just 8% usage. Budgets, scale and other priorities are the key reasons Malaysian businesses overlook protection including insurance. When asked why companies did not own business liability insurance, nearly half of the respondents (45%) said their businesses were too small and the costs were bigger than the risks. Another 41% of companies cited budget issues, and a further 29% said they had other business priorities. One in five (20%) said insurance policies were too complex, and 14% responded that they did not have time to research different liability solutions.
Looking ahead over the next 12 months, Malaysian businesses expect challenging business conditions to continue, with 37% of businesses forecasting a slowdown in business as well as higher input costs and lower profitability (36%). More SMEs identified slowing business conditions as an issue than large corporates, at 43% and 29% respectively. A quarter of companies (24%) also expect to see more intense business competition. More positively, 28% of Malaysian businesses expect to see increased advancement investment in technology, which 79% forecast will bring positive change to their industry. The outlook was also reflected in the biggest current challenges for businesses, which respondents identified as business profitability (46%); cost reduction (40%); staff retention (36%); customer retention plus maintaining technology and systems (both at 35%); and talent acquisition (30%).