Australia’s skills shortage and high manufacturing costs mean importing products and parts from overseas can make good business sense. 

This article is your risk management update on sourcing from foreign manufacturers. 

Risks of imported products/components

Using overseas manufacturers to source parts and products raises these issues:

• Poor product safety. This can result in costly recalls for your business
• Low product quality. Where the manufacturer cuts corners or uses substitutes to source their raw materials to make your items 
• Intellectual property. A manufacturer uses your product design to make and sell the products themselves
• Decreasing value of the Australian dollar and higher interest rates – these are believed to have led to a 12% drop in capital goods imported in August compared with July
• Insurance. Overseas manufacturers are unlikely to have a certificate of insurance to cover Australia, and if they do, it won’t have adequate limits, which thwarts your legal options. (The importer or Australian-based manufacturer may be liable to the injured person in the first instance, then be left with the bill to recover from the overseas manufacturer which can be very costly.)
• Global risks. If you rely on an overseas manufacturer/supply, you are more vulnerable to a wider range of issues (geopolitical tensions, natural disasters, unreliable energy, epidemics, etc) that could disrupt the supply chain than if you used a domestic one.

If there’s any issue with the overseas-made product, you must manage it yourself. Your aggrieved customers will claim against you, not the manufacturer.

Implementing quality control

Boosting quality control could mean using a third-party product inspection company or, with caution, relying on the manufacturer’s home country’s regulations. For example, about half of China’s food and drug products exported don’t meet that country’s robust export rules. Here’s what you can do:

• Check the supplier has their country’s licence to make and export the product/parts for you
• Verify those items passed that country’s government’s export inspection (be sure to double check what your supplier claims)
• Source samples of products to check their quality before you sign a deal
• Follow up on any problems you may have with a manufacturer – know your limits so you replace problem manufacturers early,
• Keep detailed records of issues
• Get your contract right – see below in the checklist.

Conduct a product liability audit

At least annually, self-audit your company’s processes and policies with product liability in mind. Document your due diligence on would-be suppliers, checking their ownership, manufacturing capabilities, finances, lawsuits, and third-party testimonials. Schedule regular rechecks of your suppliers and maintain records.

As for contracts, as well as using the checklist below, engage a lawyer with expertise in overseas suppliers to review the wording. Ask them to check the contract is legally binding for suppliers and complies with relevant laws and regulations. Gain insights into customs and quarantine rules for imports to Australia, too.

Get your marketing and labelling spot on. Check your marketing claims for accuracy, including the product’s country of origin. Fully disclose risks in using the product.

And do another self-audit when you sign up a new supplier or launch a new product.

Your importer checklist

As an importer, ensure the following are part of your product liability risk management:

• Vet your overseas supplier(s) by visiting their plant on-site and sourcing references (Alibaba can recommend Chinese manufacturers/suppliers, for example), ensuring they meet your minimum ethical standards
• Seek legal advice about contracts, patents, and intellectual property for the manufacturer’s country
• Use only written contracts to protect you for indemnity, intellectual property, dispute arbitration, etc, particularly for contract non-compliance, and costs involved in recalling unsafe or defective products. 
• Set down clear details for quality, specifications, minimum orders, exclusivity to ensure quality and compliance with Australian laws and regulations
• Investigate and negotiate insurance cover from the manufacturer with a reputable insurer, that has appropriate limits and indemnity terms
• Conduct another on-site check of the supplier’s facility before you sign your deal and verify set-up and unit costs as well as cost per unit
• Ensure the manufacturer notifies you early and seeks approval to change materials, specifications, production processes, and subcontractors
• Have a trustworthy third party inspect samples of the products on site and audit for quality and safety, and repeats these checks at the ports of entry before you distribute the products, if practicable
• Keep tabs on international currency fluctuations and talk to your bank to get the best rates on international transactions
• Monitor products you’ve sold by tracking customer trends and complaints
• Create a robust product recall and crisis communications plan to protect your brand.

Your next step

Importing can be a complex yet cost-effective move that suits your business. Be aware that Australian laws hold importers of products that are defective or unsafe ultimately responsible. That’s where product liability insurance can help protect your business. Talk to us to check your policy covers all your product lines.

While supply chains have always been prone to disruption, they have become even less predictable in the wake of the pandemic. These findings are according to a global Shopify report. Sanctions, aftershocks, and political instability continue. Fuelling the ongoing volatility includes shortages of:

• Energy
• Raw materials
• Shipping containers
• Labour.

This has led to weak links in how businesses source, produce, transport, and deliver goods.

Is this the new normal?

Add to that, changes in how and where consumers shop and spend, favouring digital retailers. No doubt they’re monitoring the impact of the falling value of the Australian dollar for their overseas purchases.

The dollar and key oil-producing nations crimping supply, has seen fuel prices stay stubbornly high, as well as inflation again rising to 5.2%. Automotive fuels rose by almost 14% in the 12 months to August, says the Australian Bureau of Statistics.

Then, there’s KPMG’s estimate of how often production will be disrupted across the globe – every 3.7 years on average. The pressure is on for supply chain efficiency and resilience to buffer the knocks.

Excess inventory cuts will affect transport demands

Supply chain issues have caused, but also prompted, some businesses to overstock. However, that can be bad for business, according to experts from the University of NSW.

Their research found that some luxury, as well as pedestrian, brands including Burberry, Amazon, Nike, and H&M, destroy rather than recycle, donate, or discount their oversupply, and face a consumer backlash against that practice.

Like many businesses, they’re holding a glut of stock. Until they work through that, and e-commerce transactions lift in Australia, demand for transport and logistics is expected to be weak. A wave of protectionism across the globe, such as in automotive parts, is also contributing. This stance creates trade barriers, world trade has become more complex, costly, and less beneficial, hence it’s still in correction mode, with only slight growth forecasted.

Transport to/from Asian countries is strengthening

A bright light in the ‘new normal’ is a global bank’s forecast for good growth in transportation activity to and from Asia. That’s coming back from a lag compared to the European Union and the U.S.

For example, a bright spot is India’s economy. It should grow 6.2% in the year to March, then 6.3% for the next 12 months, says Reuters. Emerging Asian economies, though, are struggling with a continuing downturn in external demand, says the OECD.

But overall, the Asian Development Bank has tipped a 4.7% growth for the Asian region this year. And, according to a McKinsey report issued in September, Asia will play a key role in world order, technology platforms, demographic forces, energy and resources systems, and capitalisation. It depicts a regionalised Asia as being at the hub of world trade and a global economic power. Half of the world’s highest-value trade routes go through Asia.

E-commerce logistics return to lower trend

On the downside, though, e-commerce logistics has had its pandemic heyday. At the start of this year, margins for logistics services were still firm, but growth since has been at the lower end.

IAB Australia reported in September that domestic consumer online retail spending has stabilised. However, an interesting newcomer to watch is the Chinese shopping app, Temu, which pundits tip will overtake Amazon in value soon.

So, despite unpredictability as the ‘new normal’, there are bright spots and trends that Australian transport and logistics businesses need to watch. Get your risk management strategy and actions in order. We can guide you on protecting your operations from the changing circumstances.

Each year, almost 800 Australians die due to using items that were unsafe due to their production or the way they were sold. The ACCC’s analysis shows fatalities due to faulty products were predominantly a result of:

• Fire, flames, or heat (burns)
• Falls
• Threats to breathing, such as suffocation or choking.

Those fatalities and people hospitalised due to defective products cost the Australian economy about $5 billion annually, according to figures from the Australian Competition and Consumer Commission (ACCC).

This is your guide to retailers’ duty-of-care obligations and responsibilities to ensure you sell safe goods, and what your obligations are if they’re defective and possibly dangerous. Product liability issues can harm your business reputation or worse.

Recent product recall example – Aldi

In mid-September, grocery chain Aldi recalled double USB power points, which had an increased risk of serious injury or death from fire or electrocution. It had sold the Workzone items throughout most of mainland Australia from May to early August. Aldi sources a wide range of tools and items from various companies across the globe for its Workzone label. 

This is the ACCC’s official notification webpage which issues public recalls about faulty products. It notes the responsible regulator for the recall as the Office of Fair Trading (NSW). You can also visit Aldi’s Product recall page, which is a useful guide to keep consumers updated and features frequently asked questions and answers.

Who’s liable for product defects?

National and state laws about product defect issues stem from the common law tort of negligence and contract law. These laws aim to protect consumers, not businesses. Product liability is an umbrella term, under which sits manufacturer’s liability. 

In effect, product liability casts a net over retailers, wholesalers, suppliers, importers, distributors, and manufacturers, making them legally responsible for products that:

• Are defective and on sale or available to the public
• Result in the buyer experiencing loss, damage, injury or being killed.

And, if the manufacturer is not in Australia, the law places ultimate product liability on the defective product’s importer.

Often, the manufacturer is deemed responsible, but the vendor may also be held liable. Consumers can only take action for damages against a manufacturer. However, they can opt for a broader range of legal remedies against suppliers, which includes retailers. It’s important to know if a consumer lodges a claim but if neither they nor the supplier, can identify the manufacturer in 30 days, the supplier is then regarded as the manufacturer. 

Most common liability claims

Typical product liability claims include:

• Defective products, i.e. are not fit for their stated purpose
• Manufacturing defects
• Design issues
• Deficient instructions or warnings
• Warranty breach
• Fraudulent misrepresentation, involving the manufacturer intentionally making false claims (such as through marketing) about the item
• Strict liability, where manufacturers could be held liable for personal injuries their products cause even if they weren’t aware of the possible risks. This type of claim usually covers very dangerous products – poisonous chemicals and explosives, for example.

Consumers generally have three years to lodge a claim from when they:

• Became aware of the loss or defect
• Learned of the manufacturer’s identity.

However, this may vary between states and territories. Different rules apply to children and the court may have discretion to vary.

Consumers will have to prove they or another person using the defective product were injured (or killed) or suffered economic loss or damage. Consumers can take legal action against the manufacturer or make a complaint to a consumer protection agency.

Retailer responsibilities

Retailers are accountable for injuries, harm, or damage that faulty products (they sell or supply) can and do cause. Particularly if they knew or should have known about the issue but did nothing to forewarn consumers. 

When a consumer claims against your shop for a defective product, they are entitled to a repair, replacement, refund, or other remedy, under consumer rights and guarantees. Retailers must not mislead consumers about these rights.

By the way, product liability policies have a multi-pronged definition of products that covers:

• Manufacture
• Construction
• Erection
• Assembly
• Installation
• Growth
• Production
• Processing
• Treatment
• Alteration
• Modification
• Repair
• Servicing
• Bottling
• Labelling
• Handling
• Sale
• Supply
• Re-supply
• Distribution
• Import or export by you or on behalf of your business.

Do retailers need product liability insurance?

Product liability is a commercial risk for your retailing business. You can manage these to some extent with due diligence in product sourcing and revisiting your standard terms and conditions to limit your liabilities. You can do that through waivers, acknowledgements, and releases, if they are legal.

Product testing (where appropriate), ensuring you have warnings on dangerous goods, not overreaching with your marketing, as well as regularly reviewing your suppliers will also help. Periodically, do a reverse supply chain analysis to determine the origin of your products. Also, check your contracts with manufacturers and suppliers to see if they include a ‘take back clause’ for faulty items. 

Consider investing in the protection that product liability insurance offers. It aims to cover you for compensation you may need to pay to a third party for personal injury or damage resulting from your faulty product. This policy also should cover your legal defence costs, such as legal and experts’ fees, plus court costs.

We can customise a policy to suit your unique business and product lines.

Did you only focus on individual risk factors when you last undertook a risk management matrix for your SME?

That’s OK, but the 2023 BDO Global Risk Landscape Report suggests widening your vista to the links between risks. BDO is one of the world’s largest auditing and accounting organisations and operates across Australia.

This article explains why you should consider the connections between risks and combinations of them for your evolving risk management strategy.

Moving to a risk multiplier mindset

Shifting to a risk multiplier mindset acknowledges we’re in a time of perpetual crisis. It’s where volatility, uncertainty, complexity, and ambiguity (known by the acronym VUCA) are increasingly the norm, says BDO.

It identifies the risk multiplier effect as when individual risks intersect with and amplify each other. For example, risk multipliers include:

• Political instability, such as within a nation
• Geopolitical tensions
• The Russia-Ukraine War
• The COVID-19 pandemic.

The United Nations has also declared climate change to be a ‘threat multiplier’. 

BDO’s survey of 500 business leaders across the globe found more than eight in 10 said risks were becoming more interconnected and complex. That’s why SMEs should reframe their risk management.

Changing your mindset means welcoming risks rather than being risk averse. Seeing them as opportunities rather than challenges. Taking a preventative approach to minimising inevitable risks. Risk-taking isn’t necessarily part of our nation’s DNA. Consider that just 2% of Australian businesses are considered innovators in world-leading ways, according to the Productivity Commission’s February report.

The biggest risk multipliers

It’s important to identify and mitigate risks before they transform into what BDO terms ‘existential’ threats.

Business interruption has the most potent risk multiplier effect. When you combine it with capital/funding issues, those account for almost a quarter of the biggest threats to business, says BDO.

Next on the list of risk combinations creating the biggest threat are:

• Environment x supply chain (17%)
• Cyber attacks x fraud (13%)
• Cyber attacks x brand damage (12%), then
• Geopolitics x supply chain (9%).

Risks may be paired, tripled, or even quadrupled. This causes threats that overlap with each other and amplify the threat. Risk multipliers can be financial, operational, reputational, or, even where your business performance relies on a single customer, a product or market.

Most powerful risk combinations by industry

Here’s BDO’s lens on the most powerful risk combinations by industry: 

• Financial services: Business interruption x capital/funding
• Tech, media, and telecoms: Business interruption x capital/funding
• Power and utilities: Business interruption x supply chain
• Oil and gas: Environmental x supply chain
• Real estate and construction: Environmental x supply chain
• Healthcare and life sciences: Environment x people
• Shipping, transport, and logistics: business interruption x supply chain, and
• Manufacturing: Environmental x supply chain (equal).

A new approach to risk

This article has covered taking a risk-welcoming approach, and shown how risks combine and multiply, thereby amplifying their effects. Three in four business leaders, who BDO surveyed, said they did not gather expertise across their business for insights into how risks increase and multiply. That’s not sustainable in a ‘perma-crisis’ approach. 

Embed risk management awareness across every role in your business and:

• Conduct regular audits to identify possible risk multipliers
• Assess risks that have a multiplier effect 
• Roll out strategies to target particular risk multipliers
• Build early-warning systems to identify risks before they move into other business areas, and
• Link expertise from across your business to manage risk multipliers and their effects.

A useful tool is a combinatorial risk matrix that allows you to assess the combined likelihood and impact of risks which could be more than the sum of the individual risks. Usually, such a matrix won’t come cheap, such as this one. Keep in mind, too, that research shows some risks you identify could happen at the same time, others may not appear at particular times, some risks can eliminate other risks and yet others may follow in an unexpected order. 

The convergence of various risks will significantly influence the optimal coverage required for your business insurance policies. Check with us to make sure your sum insured is still correct.

Supply chain fraud is in the spotlight. A report from the Australian Competition and Consumer Commission (ACCC) showed a 1,174% increase in false invoices led to $8.6 million in losses last year.

By taking control of a legitimate business’ online accounts or email, scammers send fake invoices to divert payment to their own bank accounts. That’s online fraud.

Goods could also be stolen in transit. For example, criminals have also used forged documentation to pose as subcontractors or drivers to ‘hijack’ supplies en route.

Supply chain fraud and its consequences 

False invoices or poor security practices aren’t the only causes of supply chain fraud. According to the Australian Cyber Security Centre, those risks can result from foreign control or interferences, a lack of transparency, or unjustified continued access and privileges to your systems. Fraud also encompasses lies about the origin of goods, counterfeit products, even smoke and mirrors about financial and inventory records. Using paperwork and outdated technology doesn’t make it easy to track goods on your supply chain either.

The lure for fraudsters is the size of the supply chain market – globally it’s expected to hit more than AU$34 billion this year, says Statista. By the way, globally, food and beverage theft from supply chains is the highest risk.

The supply chains that Australian businesses and organisations use have become increasingly complex, involving many players, transactions, and interactions. It’s even prompted the Australian Government to set up an Office of Supply Chain Resilience to identify and monitor critical supply chain vulnerabilities.

Why could supply chain fraud be a problem for your business?

• Risk of selling unsafe, non-compliant products resulting in product recalls, contaminated products, delivery delays, and legal ramifications
• Damaged business reputation
• Financial losses from the above
• High insurance premiums
• Customers unable to verify if the products they’ve bought are authentic, and
• Consumers unable to trace contaminated food to its source.

Check out these four tips that your business can embrace to protect your supply chains.

Doing supplier due diligence

Typically, multiple employees will collude and collaborate to engage in supply chain fraud. This allows them to bypass protocols and checks businesses have in place.

Your key guide on preventing, detecting and responding to fraud risks is the Australian Standard AS 80011:2021 Fraud and Corruption Control. It suggests steps to vet suppliers including:

• Search the company register, trading address, and telephone listing to verify
• Look up ABN and verbally confirm bank details
• Check directors’ personal details
• Query their credit rating
• Search bankruptcy and disqualified directors, and
• Scout social media and online sources, including Scamwatch and for court cases and judgements.

Use the standard to create (or update) your comprehensive checklist for onboarding suppliers.

Internal controls

Observe the following to identify and prevent supply chain fraud:

• Establish policies and procedures, including for staff to sign invoices verifying the receipt of goods or services
• Create a conflict-of-interest framework for staff and contractors
• Train staff regularly to be fraud-aware and ensure they know your expectations about ethical conduct
• Rotate and separate duties of staff in procurement roles
• Only approve expenditure once financial delegate ‘paperwork’ is complete
• Be alert for employees not taking leave, as it may indicate their fear that replacements will uncover their fraudulent activities
• Set up a whistleblower hotline
• Check your financial records and inventory for ‘messy’ credits, transfers, errors, connections, or adjustments, and
• Invest in fraud detection technology to reduce manual checking and prevent duplicate contracts from being entered.

Leveraging technology

Advanced technology can also help your business fight fraud. Blockchain, the Internet of Things, as well as data analytics offer supply chain:

• Transparency
• Traceability, and
• Verification.

Investing in technology can also reduce the risks of substandard or counterfeit items becoming part of your production process.

Using blockchain and verifiable credentials can securely record transactions permanently and in a way that can be verified. As part of its National Blockchain Roadmap, the Australian Trade and Investment Commission has set up a working party to explore blockchain frontiers in supply chains. The European Union is further down the track. You can check out their Blockchain for Supply Chain Transparency report.

Protect your business with crime insurance

You can also protect your operations from business-related crime with tailored cover. A business crime insurance policy can defend you against losses from such crime including:

• Internal Crime:
  • Protection against financial losses caused by fraudulent activities or dishonest actions of employees, such as theft of money, securities, or property.
• Internal Crime:
  • Safeguarding against various external threats, including:
    • Third-party computer crime: Coverage for losses resulting from cybercrimes committed by external actors.
    • Third-party forgery: Protection in cases where a third party forges documents, leading to financial losses.
    • Third-party counterfeiting: Coverage for losses due to counterfeit currency or financial instruments.
• Theft, Physical Loss, or Damage:
  • Coverage for losses resulting from theft or physical damage to money, securities, or property, including situations where a third party permanently takes these assets.
• Client Loss:
  • Insurance coverage extends to situations where the insured is entrusted with the care, custody, and control of clients’ money, securities, or property, and such assets are lost under the main policy.
• Fees, Costs, and Expenses:
  • Coverage for various expenses incurred in the aftermath of a covered loss, including:
    • Auditor fees or investigation costs associated with identifying covered losses.
    • Legal fees for defending against demands or claims resulting from a covered loss.
    • Reasonable costs to restore the insured’s computer systems following a covered loss, which can be crucial for business continuity and recovery.

The theft section of your commercial property insurance may only cover you for theft of your contents or stock. Money or negotiable instruments can be insured separately under a Crime policy. However, a business crime policy can be part of a tailored package of insurance policies for your unique business. Talk to us to ensure your cover is appropriate.

Plant and equipment are the lifeblood assets of your business, so how can you get the most out of them and reduce the risks?

Here are five tips to help get you on your way.

Tip #1: Schedule maintenance based on use and environment

The manufacturer’s guide is based on average equipment use, but that might not match with how you’re using the gear, nor the configurations or customisations in place. Regular maintenance can help reduce costly repairs and fuel consumption, plus extend the equipment’s lifespan. 

Prioritise your crucial equipment and plant. Collect data such as equipment availability percentage, total downtime, downtime cost, and what that translates to annually. Identify options to source spare parts that are likely to wear out, rather than rely on one supplier. This is the difference between which spare parts are ‘nice to have’ or those that are essential.

As you’re recording these details, consider how these factors affect the equipment’s maintenance and availability:

• Human (such as usage of the gear and error)
• Economic
• Equipment and tool-related
• Management 
• Environmental

Tip #2: Train the operators

A key reason for plant and equipment breaking down earlier than expected is misuse. Instead, be sure to train your staff and other operators to use your equipment properly and with respect. Do they understand how it works and what’s needed for it to function well?

They’ll need refreshers, ideally every six months, particularly after equipment upgrades. You may have customised or reconfigured your plant over time, so parts of the manual may be obsolete.

For example, good training means your operators will know they can switch to the left lead while grading along curbs to extend the life of your motor grader. Consider these other tips:

• Explain why excessive braking isn’t a good idea 
• Depending on the type of machine, avoid idling the engine before shutting down the machine. For a typical wheel loader, this can damage the turbocharger, which may cost thousands to repair
• Guide staff about how to optimise lower work modes and productivity rather than running the machine at full throttle – the former saves on fuel costs
• Mix up the training so it involves hands-on, reading, watching videos, doing quizzes, allowing trainees to ask questions of experts, etc
• Don’t assume a truck driver will know how to operate cranes or other equipment attached to their rig, for example. Avoid taking shortcuts in training
• Make sure staff know which is the correct equipment for the task
• When not in use, store the equipment or plant correctly

The Australian Tax Office is offering incentives this financial year for small businesses to invest in technology skills and training. Find out more here.

Tip #3: Inspect for signs of wear and tear

Another reason that machinery, equipment, or plant break down or need parts replaced is wear and tear. Keep on top of these:

• Check your machinery often and thoroughly for signs of damage, wear, and tear (cracks, chipped paint, loose bolts, etc)
• Address leaks, grease build-up, and excess oil
• Top up lubricants for gears and other moving parts
• Replace parts as needed, consider investing in quality parts
• Encourage operators and other staff to be alert to and share warning signs (unusual vibrations or noises) and potential risks for damage
• Ensure managers check weekly how many hours machines were used, for which tasks, and to measure lubrication levels
• Log your inspection date and what you find, any follow-ups or recommendations
• Compare your report with the manufacturers’ recommendations and expectations for the equipment

If you spot issues with the electrical system, be sure to follow the inspection and testing regulations of the state and territory where you’re based, such as this guide from Safework SA.

Tip #4: Clean regularly 

Hand cleaning your plant could be time-consuming, difficult, and unsafe. You might need special equipment such as power or pressure washing, but if that’s not practical, consider bringing in an expert for the following.

• Regularly clean filters and seals to keep moving parts dust, grime, and contaminant free
• Spot corrosion, noting where and when it happens, so you’ll be able to do predictive maintenance
• Once you’ve lubricated the machine, move on to degreasing and polishing (choose if daily, weekly, or monthly works best for you)
• Assess the environment in which your equipment is used or stored, to address issues that could be unnecessarily increasing your cleaning challenges

Tip #5: Protect your gear with plant and equipment insurance

Insurance is an important part of your risk management strategy. Protect your assets with a plant and equipment insurance policy. It’s relevant for a range of equipment, including graders, bulldozers, compactors, pile drivers, hole diggers, cranes, forklifts, bobcats, etc. 

Plant and equipment insurance can cover:

• Theft
• Damage
• Liability while being used
• Wet or dry hire
• Machinery breakdown
• Agreed value (for replacement)
• Loss of revenue
• Driving risks while on a public road
• Liability coverage extending to all your business activities

Let us guide you on the best fit for your business operations. Bundling policies together can often earn you discounts and helps minimise the risks of under-insurance.

It’s less than a year since OpenAI released its (general) artificial intelligence (AI) app, ChatGPT. Since then, it and its alternatives, have transformed how we do business.

Such tech is known as generative AI, a form of machine learning. Trained on a vast database of natural language, it can create content, such as text, code, audio, images, simulations, and video. Think chatbots, Google Bard, Snapchat’s My AI, DALL-E2, Midjourney, and the voice generator Microsoft’s VALL-E.

Generative AI may already be part of your business strategy. According to the Australian Securities and Investment Commission (ASIC), AI can drive efficiencies in operations – price prediction, hedging, automating, or performance tasks – as well as risk management for fraud detection.

The hype and risks of generative AI

Generative AI has been dubbed industry’s next big disruptor, as big as the internet and the smartphone have been. Microsoft’s Bill Gates has forecast a future where we each have an AI personal assistant. Scholarly researchers across several industries last month released this crystal-ball gazing opinion paper.

Australian eSafety Commissioner has issued a position statement on generative AI, detailing the pros and cons. It frames opportunities through the lens of online safety, including to:

• Detect and moderate harmful online material more effectively and at school
• Offering evidence-based scalable support that’s accessible and age-appropriate to meet young people’s needs
• Enhance learning opportunities and digital literacy skills
• Provide more efficient methods on consent for data collection and use.

KPMG has listed AI use cases and potential opportunities. Specific industries expected to be early adopters in harnessing AI opportunities include health, banking, finance, education, creative industries, and engineering, says Australia’s Chief Scientist, Dr Cathy Foley. She says it’s almost impossible to accurately forecast the opportunities of generative AI over the next decade.

However, the risks are also clear. Here are three broad categories:

• Does not perform as expected, such as ‘hallucinating’ responses and responding inappropriately to users, inherently biased
• Used maliciously for harmful purposes, to create and amplify content that is discriminatory, deceptive, false, harmful and/or defamatory, including scams and phishing (and other cyber security breaches), and a chatbot giving the wrong instructions for preparing machinery
• Overuse or inappropriate or reckless use in a particular context, including online pornography for a child user.

Ethical and copyright issues include businesses claiming AI-generated content as their own. If AI-produced code or information became part of a deliverable or product, that could breach copyright or IP, thereby damaging your brand’s reputation, says KPMG.

The eSafety Commissioner cautions that, while many companies are quickly developing and deploying their own generative AI technologies, those organisations need to attend to risks, protection, and transparency for regulators, researchers, and the public.

The Federal Government is reviewing the Privacy Act 1988 to ensure it’s fit-for-purpose in the AI era. The eSafety Commissioner has also flagged concerns about generation AI regarding data ownership, national security, law environments, and the environment and labour market, so there may need to be further regulations implemented.

Unauthorised disclosure

There’s currently a paucity of regulatory or legal frameworks to protect businesses against the risks of AI. That means if you and your staff are using generative AI without internal or external buffers, your business could be inadvertently:

• Disclosing intellectual property, trade secrets or confidential information, and
• Exposed to liabilities for violating privacy, consumer protection, or other laws.

For example, uploading text or documents to generative AI feeds its dataset. You can change your settings on ChatGPT to incognito mode, so it retains your data for only 30 days for security purposes. But that data is still in its training set for that time, so can be shared via the publicly available knowledge base. Be sure your staff know there’s no safe way to upload confidential information on ChatGPT. It is for this reason that larger companies are opting for ‘internal’ AI systems that don’t expose their data to people outside of their organisations.

You may be using another platform for the automation of some of your processes. Technically, third-party organisations own the platform and could use the data you upload for their own purposes. Video-conferencing service Zoom recently had to clarify terms and conditions which had looked like it could use any audio, video, chat, screen sharing, attachments, etc. to train its own AI models.

Violations of consumer protection laws (GDPR)

The General Data Protection Regulation (GDPR) applies if your business targets or collects data related to people in the European Union. Known as the world’s toughest privacy and security law, it can be daunting for SMEs to comply. Check out this official EU website for guidance, and this one for how to manage the privacy risks of emailing EU countries.

Lack of policy, training and monitoring

So, how can your business develop responsible AI usage practices? KPMG suggests you:

• Develop a policy on how you’ll train staff to use AI
• Ensure that policy spells out both appropriate and non-appropriate usage
• Schedule when you’ll review the policy and associated processes, and assign the task of ongoing monitoring
• Be transparent in your terms and conditions for clients/customers about how you use AI.

A recent government discussion paper on safe and responsible AI use details how organisations around the world are tackling policy, training, and monitoring. The global AI Standards Hub offers some useful insights and eLearning modules. Salesforce has tips to look at your approach for short, medium, and long-term time frames.

For guidance on AI ethics principles, look to the Federal Department of Industry, Science and Resources. Its voluntary framework can help:

• Build public trust in your product or organisation
• Boost consumer loyalty in your AI-powered services
• Positively influence AI outcomes
• Ensure all Australians benefit from this innovative technology.

If you provide a service and that service includes providing advice generated through AI you should ensure that your business insurance such as professional indemnity insurance is adequate to manage your risk.

Your small-to-medium-sized business may rely on gig or freelance workers during busy times or year-round. Or you may be on the cusp of hiring them.

These on-demand workers could be more convenient than permanent hires, but they still come with risks you need to factor into your insurance cover.

This article demystifies gig workers, explains the challenges they may pose, and suggests options for protecting your business.

What is a gig worker?

Gig workers do a project-based or fixed-term role. The Fair Work Ombudsman distinguishes gig workers – also known as independent contractors – from employees.

These are the characteristics of an employee:

• Obliged to accept work from their employer
• Wears a company uniform
• Uses a company vehicle/bike, tools, or equipment
• Must do the work themselves, not subcontract or delegate it
• Has fixed shifts
• Is entitled to paid leave and a minimum wage because they’re covered by the National Employment Standards
• Won’t need to pay for their own workers’ compensation insurance
• Does not pay their own tax and superannuation.

This Fair Work website compares employees with independent contractors. Even if a worker has an ABN, issues invoices, or does a particular type of work, this won’t automatically make them a contractor. One factor to consider is the work contract, which can be verbal, written or both. It is a contested area, though, and this Federal Parliamentary article indicates possible gig economy employment law reforms.

The Australian Small Business and Family Enterprise Ombudsman says it’s illegal for businesses to misclassify an employee as an independent contractor. Doing so means those businesses may need to back pay the worker any entitlements they’d missed out on.

As well, under the Fair Work Act, courts can penalise such businesses up to $16,500 for individuals and $82,500 for corporations for each contravention. Beware, too, of new provisions about unfair contract terms in small business agreements, including with independent contracts, which comes into force in November.

Prevalence of independent contractors in Australia

Australia’s digital gig economy began in 2006 with Menulog launching the country’s first online meal delivery service. Since then, Uber, Freelancer, Airtasker, and Upwork have become household names. They’re among the now 100-plus digital platforms operating within Australia.

The average gig worker is aged 18 to 34 and male, and does transport, food delivery, professional services, odd jobs, maintenance work, writing, translations, data entry, creative/multimedia, sales or care services.The most recent figures from the Australian Bureau of Statistics show there were 1.1 million independent contractors as of August last year. A quarter worked in construction, one in five in administrative and supports services while 14% were in professional, scientific and technical services. Independent contractors were most likely to be technicians, trade workers, labourers or machinery operators and drivers.

These sectors saw the biggest increases in the five years to August 2022:

• Agriculture, forestry and fishing (from 7% to 10%)
• Information media and telecommunications (10% to 12%), while
• Financial and insurance services dropped from 5% to 3.

Unique challenges when employing gig workers

Your biggest risk in employing gig workers is misclassifying them, as mentioned above. Other issues include:

• You’ll have less power to manage them and their work because they’ll have more autonomy than an employee
• It can be difficult to do your due diligence to check their bona fides
• Employing gig workers could open you up to new liabilities, including reputational damage if their work ethics or quality aren’t up to standard or your clients’ deadline
• Unreliability if they’re based in a third-world country with intermittent power and internet connectivity
• They may not have professional indemnity, public liability or other insurances, so if there are issues, you’ll need to sue them personally or try to claim on your own insurance
• You’ll need to check if there are tax implications for you, and
• Overseas gig workers, such as in developing countries, may shirk registering as an independent entity, thus increasing your liabilities for breaching labour laws

If you use a global job platform to hire an overseas-based remote worker, local laws there might mean that country will see you as an employer. That’s because the definition of an independent contract v employee differs across jurisdictions. Therefore, your worker may need that country’s approval to work there and you’ll need to comply with local employment and industrial laws. Lawyers Baker McKenzie offer this advisory insight.

Useful insurance options

If you’re working with gig workers, make sure you understand your risks and insurance. Safe Work Australia encourages employers of gig workers to check the rules of Commonwealth, state or territory workers’ compensation schemes in their region. Those rules might determine that the platform owner employs the gig worker. The workers’ compensation authority could seek to recover insurance fees from that owner.

When hiring, make sure that the gig worker has their own insurances, such as public liability. In the instance your business is sued where the gig worker is at fault, your business will be covered.

With spring around the corner, it’s a great opportunity to start spring cleaning for your business.

Evaluating your operations at the start of the second quarter allows you to tweak and transform in ways that may pay off for the rest of the financial year.

Tip #1: Review your inventory

With supply chain disruptions continuing, you may have lower levels of stock, or even be overstocked. Spring is an ideal time to see what you’re holding and sell old, expired, or damaged stock at a discount if needed. That unlocks cash flow and frees up space for new stock.

Business Queensland offers sound advice about stock control and finding the right balance between keeping stock and the costs involved. There’s even an online calculator to work out your stock turnover ratio. It’s about getting the balance between overstocking, therefore paying more for space, labour, the outlay, and understocking, so risk losing sales.

An online inventory system that gives insights and alerts helps you keep track of what you’ve got, customer purchasing patterns, and supply chain issues, etc. Prioritise the 80% of sales that tend to come from 20% of your product lines.

Your business may also need to do a yearly stocktake for tax purposes. If that applies to you, then September could be your quarterly reminder to check your inventory. Use that review to identify more efficient ways to organise your stockpile.

Tip #2: Review your suppliers

Take a magnifying glass to your suppliers:

• Comb through historical data to identify issues, plus crystal-ball gaze for upcoming risks
• Look to diversifying suppliers and sourcing domestically rather than from overseas for greater certainty
• Investigate whether they could send items directly to your customers, saving you time, labour, and storage costs. This might be handy if you have an overflow of stock
• Nurture your relationships with them to build trust, reliability and increase the chance they’ll step in when you’re in a tight spot.
• Review your suppliers’ performance and give them feedback on key metrics (price, quality, reliability, communication flow, etc)
• Discuss payment terms, lowering minimum quantities and potential discounts each quarter
• Access outside expertise to give your supply chain a health check and to pinpoint areas that need improvements.

Tip #3: Declutter

It’s not just physical items, such as equipment, stock, and furniture, that you’ll need to consider. Adopt a ‘onesie’ rule for your workstation – only have what you need for your current task on your desk. Otherwise, you risk multitasking, which can cost you up to 40% of your productive time, research shows.

Put these aspects of your business under the microscope, too:

• Update your website
• Do a health check of your accounting processes, budget, P&L, and margins
• Finesse your marketing strategies
• Revisit your client lists to ensure their details are up to date
• Refresh your calendar to adopt ‘time blocking’ to ensure work is done to the deadline, and you set aside time to clear your mind.

Check with your local council for hard waste collection dates and recycling centres to help rehome your items no longer needed. If there’s still some value in them, consider selling them on online marketplaces, donating to thrift stores, or offering them to staff. Or, if you’re a social enterprise, and have a regular waste stream that could be repurposed, look into grant programs such as this one from the City of Melbourne.

Tip #4: Make sure your insurance is up to date

A year is a long time in business. It might be a while since you’ve updated your insurance cover. These things would trigger a need for a refresh, for example:

• Offering new services or products
• Sharper business policies and practices, such as for cyber security, remote working, etc
• Retiring some business assets
• Buying new business equipment
• Investment in more security for your premises
• Having new staff
• Different workplace conditions, such as fluctuating stock levels, moving premises or opening a new site, even remote staff now working from your office, etc.

Tip #5: Let us help you

We’re your friendly, knowledgeable guide on all things insurance. Reach out to us to make sure your insurance is up to date. We’ll also help ensure your policies are perfectly tailored to your current circumstances.

Resilience skills help businesses in crises, such as during the pandemic, but also outside of those times. Resilience is being able to evaluate, identify, and address challenges as swiftly as possible to achieve a good outcome.

It’s good to know Australian SMEs have more support to deal with whatever disaster lands their way.

Govt invests in resilience projects

Australian governments announced in June they would invest $400M to help protect communities at risk of extreme weather impacts. The Federal Government is matching states’ and territories’ $200M pledge to fund 187 resilience and mitigation projects. They were the first round of the five-year $1 billion Disaster Ready Fund, which replaced the Emergency Response Fund.

And that’s good news for you as an insurance policy holder. Those projects were selected for their capacity to reduce premium pricing and the protection gap, says the Insurance Council of Australia.

Find out more about government funding:

• Bushfire community recovery and resilient fund (NSW & Federal)
• Resilient homes (NSW & Federal)
• Resilience funding programs (Queensland)
• Strong and Resilient Communities (Federal Department of Social Services)
• Protecting our Communities (Disaster Resilience) Program (Federal)
• Future Drought Fund (Federal Dept of Agriculture, Fisheries and Forestry)
• Supply Chain Resilience (Business.gov.au)
• Agriculture Climate Resilience Fund (WA), and more.

Be sure to check what’s happening in your region, state, or territory.

Australia’s recent disasters

Why was this pledge needed?

According to the Climate Council, Australia is experiencing an era of unnatural disasters including rain events, floods, bushfires, storms and the occasional earthquake. It estimates every Australian household is paying $1,532 on average extra due to extreme weather events over the past year. That’s 73% up on the ten-year average. Those extra costs arise through higher food prices and insurance premiums as well as repairs to essential infrastructure.

You can check this government website for possible funding options if a disaster has affected your business.

Resilience through business prep

With the spate of disasters increasing, it pays to bolster your business approach to resilience. Consider these tips:

• Update your business continuity plan
• Ensure it details how to prepare, respond, recover from, and communicate regarding cyclone, storm surge, severe storm, flood, bushfire, drought, etc
• Know what to add to your emergency kit
• Refresh your knowledge about emergency alerts, warnings and contacts, and
• Check you’ve got what you need to respond to natural disasters.

Prep your business for possible disasters quarterly, not just yearly. Be mindful wind speeds of just 60km p/h can turn outdoor items into missiles that injure people, damage cars, and structures. Learn when peak storm season arrives in your region.

Understanding business interruption insurance

Business interruption insurance is a type of insurance coverage designed to protect businesses from financial losses resulting from unexpected disruptions or interruptions to their normal operations as a result of an insured event.

The insurance typically covers the loss of net income that a business would have earned if the disruption hadn’t occurred. It helps businesses bridge the financial gap during the time they cannot operate at full capacity.

The policy may also cover fixed costs, such as rent, utilities, and certain operational expenses.

Business interruption insurance may also cover additional expenses incurred by the business to mitigate the impact of the interruption. For example, expenses related to relocating to temporary premises, expedited delivery of critical supplies, or increased advertising to regain customers.

We can help you review your current package of policies to see if you have gaps in business interruption cover. Often, you’ll have this protection for insurance for business premises, contents, public liability, and professional indemnity, but it’s best to check.