Brokers weigh in as 'side hustle' issue rolls on

The fallout continues over news reports that many Australians with home-based businesses have been told that such activities will invalidate their home and contents insurance.

insuranceNEWS.com.au understands Financial Services Minister Stephen Jones has received an initial briefing on the matter from Treasury, and has had informal discussions with the Insurance Council of Australia.

More detailed consultations, including with ACT Independent Senator David Pocock, who urged Canberra to act on the matter, are expected after Parliament has risen.

Mr Jones previously said he wants to find a “very pragmatic workaround” after it emerged that home and contents policies are being cancelled or claims denied due to a lack of disclosure around business activity at insured addresses.

insuranceNEWS.com.au reached out to six brokers for their views on the matter.

Allsure Insurance Agencies Principal Melissa Donaldson:

Ms Donaldson says her advice for consumers who make a full-time living from running a home-based business is to talk to an insurance broker, who can help determine if there is risk that the insurer should know about.

She says every business should have its own liability cover and there are insurers that will extend liability to include the business, depending on what the insured does.

“Use a broker, as you are not the expert in insurance, they are,” she says. “They are not usually more expensive than going directly, and the peace of mind is always worth it.”

Even for a hypothetical client who bakes to make some side income, she says they really need insurance for their business.

“The issue comes from the liability exposure they have from their baking business,” Ms Donaldson says.

“This isn’t covered under their home liability cover. It would be like having your car in the garage, and your car isn’t insured, and the garage catches on fire…the car isn’t insured, just because it’s in the garage that is insured.”

Ceneta Insurance Services Director Veronica Kypros:

Ms Kypros says it would certainly be helpful for all insurers to agree on the definition of a home-based business. She says providing clarity is critical to the consumer being able to self-assess whether they need to disclose their home business activity to the insurer.

She says many consumers would believe that their side-hustles are hobbies, rather than business activity.

“Clear information about when a hobby becomes a business, would help alert the consumer to the need for disclosure,” Ms Kypros says.

Consumers are often unaware that there may be a problem until they see a horror story in the press. And many take the “head in the sand” approach to insurance, preferring not to disclose information that they think may lead to uncomfortable truths such as a need to change insurer or pay more premium.

She is disappointed many insurers appear not to offer any coverage to home-based business owners but says Ceneta has identified some insurers which have bespoke products for them, or insurers who do allow it as an extension to their normal home & contents products.

“This is where a broker’s specialised knowledge of available solutions can really assist the client,” Ms Kypros says.

One of Ceneta’s clients disclosed his home-run business to the insurer, who informed him he could keep his existing home and contents cover “on the proviso that it is declared and extra premium paid,” she says.

“Not all insurers will agree to this, so brokers may need to remarket the client’s policy if they are made aware of the business activity by the client, and it is not within the incumbent insurer’s appetite,” Ms Kypros said.

She says it is important to note that finding a home and contents insurer that will allow you to run a business from home does not mean that the business is covered under that policy.

“The insurer may simply be saying that they are aware you are running this business from the home, with no detriment to your home and contents coverage,” she says. “Many home businesses would require their own public liability and maybe also cover for equipment and/or stock, which should be arranged separately.”

She says the brokerage has fielded a number of enquiries since reports of home and contents cover being cancelled or claims voided because it was not declared to insurers business activity was taking place at the insured premises.

Clients wanted reassurance that they are properly covered or are disclosing their home-based business activity for the first time.

“Brokers would be well advised to alert any home and contents policyholders, asking them to get in touch if there has been any change to their circumstances, specifically if they have started any home-based businesses,” Ms Kypros says.

GT Insurance Brokers Director Glenn Thomas:

Mr Thomas says times have changed with more people now working from home and in a mobile fashion, and many may use their home as their base.

“Insurers need to adapt and take these scenarios into account when rating these risks,” he says.

“Each insurer is handling every scenario differently and it is fair to say that home and contents policies still have a level of complexity and not every situation will fit in a box.”

He agrees that home and contents policies are not designed for business risk but they can be and with that in mind each insurer should determine what suits them best – either by applying a loading, an endorsement, or conditions.

“Insurers could put conditions such as whether an ABN exists, whether it is their full-time occupation,” he says.

Mr Thomas says there are still some insurers showing a common-sense approach to clients who have a side hustle.

He says their premiums may not necessarily be the most competitive in the market, so it is therefore up to the client to decide whether they want to continue the business activity at home knowing they are now required to pay higher insurance premium.

Insurance House Broking GM Scott Leis:

Mr Leis says the simple fact is, for many clients their individual needs have changed, and in some cases, a home and contents policy on its own may not provide the protection they require.

“It highlights the importance of having a strong client/broker relationships and engaging in quality conversations, to ensure we get the right policy for the right circumstances,” he says.

Asked if demand for home-based insurance products to cover business activities has increased, he says: “Yes, many of our clients’ personal situations continue to change and this is a more common discussion with them.”

“There is no doubt that as we return to ‘our new normal’ post-lockdowns, it is even more important that our clients take an active interest in their insurance policy/program,” he says. “This is particularly if their working and living situation has changed. It is important to ensure they, together with their broker, understand the potential risks and the coverage required to protect them.”

He sees an opportunity for clients and brokers to partner to actively participate, educate and understand the importance of a quality insurance product.

“Doing so will result in developing risk-based decisions that are focused on protecting the client’s best interests, with less of a focus on cost minimisation,” Mr Leis said. “This is a ‘conversation worth having’ and an important step away from the theory that buying insurance is a grudge purchase.”

MGA Insurance Group Broker Ashley Ward:

Mr Ward says every circumstance is different and each insurer has their own requirements. He says there is some pushback from insurers for clients that are operating some particular types of businesses from home but it’s very much a case-by-case basis.

The brokerage has always explained to clients that home policies aren’t business insurance policies and as part of MGA’s assessments of a client’s insurance needs, questions relating to their set-up are asked.

“It’s part of the duty of disclosure,” Mr Ward says. “I think this series of events has shown the importance of talking to your insurer and more so the importance of talking to a broker to actually have a conversation about what the risk is.”

Remingtons Insurance Brokers Senior Account Executive Tarah Burgess:

Ms Burgess says there are no insurance solutions available for the majority of home-based business owners, so there is a real gap in cover for these exposures.

The brokerage has been fielding plenty of calls from clients who run their businesses full-time from homes and at this stage, there are few solutions available for the majority due to the nature of the business they operate – which are not office or farm-related.

She says the industry needs to acknowledge there is not a suitable market at present for consumers who fall under the home-based business category and that a solution needs to be found.

“The industry needs to inform consumers of this and either discourage consumers from operating businesses from home, or amend the Home Insurance policies to include these risks, or create new Home Business Insurance products that consumers can purchase instead,” Ms Burgess says.

She says it is “not fair” to consumers if they were told their “side hustle” – such as repairing computers for extra income – would lead to a cancellation of their home and contents cover.

“A real gap in cover exists, and at present there is not a product in the market that a person in this situation can purchase to meet their needs there,” she says.

“We have found that there are options available for some customers. However, many geographical and occupation specific situations are often declined. With the way the world is evolving many home owners will have side hustles. This needs to be something more thought about and more solutions created.”

Asked if homeowners should be penalised for running honesty boxes, she says consumers do have a duty of disclosure that they are required to meet when purchasing insurance.

“However, it is not fair and reasonable for an insurer to decline a claim on the home that has no relation to their business,” she says.