Is public liability insurance compulsory for all Australian businesses?

No. There is no general law requiring every business to hold it. It becomes compulsory through licence conditions in particular states and occupations, and far more often through contracts. The occupation and state pages on this site record which licences attach a condition and which do not.

My client is demanding a limit that seems very high. Do I have to meet it?

If it is a contract term you have agreed to, it binds you as a matter of contract. Whether it is negotiable is a commercial question, and whether the cover is appropriate for your work is a question for someone licensed to advise. What it is not is a legal minimum that applies to your trade generally.

Who can tell me definitively what I need?

For statutory schemes, the scheme regulator in your state. For a licence condition, the body that issues the licence. For a contract, the contract. For whether a particular policy suits your business, somebody who holds an Australian financial services licence — this site does not, and does not advise.

Is it legally required, or does somebody just want it?

In short

Three separate things get described as compulsory, and only one of them is a general legal obligation.
Statutory schemes are law. Licence conditions are law for that licence, in that state, for that class of work.
A contract term is neither — it is a commercial demand, and it is usually the reason a business is buying at all.

The most common question in Australian business insurance is not what a policy covers. It is whether the person demanding it is entitled to demand it, and the answer changes depending on which of three things is doing the demanding.

Separating them is worth doing once, because it decides whether a business is negotiating, complying, or simply mistaken.

One: a statutory scheme, which is genuinely the law

Workers compensation is the clearest example. Every state and territory runs a scheme, and once a business employs people the scheme defines as workers, cover is compulsory. There is no version of this that is negotiable, and operating without it carries penalties.

Residential building work has a second layer in most states: a per-project scheme that protects the homeowner if the builder dies, disappears or becomes insolvent. It attaches to the job rather than to the business.

These are the covers a business cannot shop for, and the scheme pages on this site record what each one requires against the regulator publication it came from.

[Statutory schemes by state](/schemes)
[Workers compensation insurance](/insurance/workers-compensation)

Two: a licence condition, which is law for that licence only

Some occupational licences require the holder to carry insurance as a condition of holding the licence. This is real law, but it is narrow: it applies to that licence class, in that state, and not to anybody else.

It is also far less common than most people assume. Verifying this across four trades and all eight jurisdictions produced a genuinely surprising result: most mainstream trade licences carry no public liability condition at all. Several states substitute something else entirely — a solvency test, a per-project scheme, or a duty to disclose to the client what cover is held.

Because the answer differs by state and by trade, it is recorded per occupation and per jurisdiction rather than stated generally.

[Requirements by occupation](/occupations)
[Public liability insurance](/insurance/public-liability)

Three: a contract term, which is a commercial demand

Principals, head contractors, landlords, councils, venues, platforms, universities and clients all impose insurance requirements. These are contract terms. They bind because the business agreed to them, not because legislation says so.

That distinction matters in both directions. A contract requirement can be higher than any licence condition, and where it is, the higher figure is what the business has to meet. It can also be negotiated, questioned, or found to be a template nobody has revisited — which is worth knowing before paying for a limit to satisfy it.

It is also the reason two businesses doing identical work carry different cover: they signed different documents.

Why the distinction changes what you do

If the requirement is statutory, the question is compliance and the answer is in the scheme. If it is a licence condition, the question is what that state attaches to that licence, and it is verifiable. If it is a contract, the question is what was agreed, and the document is the only place the answer lives.

Businesses that treat all three as the same thing tend to buy to a number somebody mentioned, then discover at claim time that the cover does not match the work. Businesses that separate them tend to ask a better question: not "how much do I need", but "who is asking, and what did I actually agree to".

Questions

Is public liability insurance compulsory for all Australian businesses?: No. There is no general law requiring every business to hold it. It becomes compulsory through licence conditions in particular states and occupations, and far more often through contracts. The occupation and state pages on this site record which licences attach a condition and which do not.
My client is demanding a limit that seems very high. Do I have to meet it?: If it is a contract term you have agreed to, it binds you as a matter of contract. Whether it is negotiable is a commercial question, and whether the cover is appropriate for your work is a question for someone licensed to advise. What it is not is a legal minimum that applies to your trade generally.
Who can tell me definitively what I need?: For statutory schemes, the scheme regulator in your state. For a licence condition, the body that issues the licence. For a contract, the contract. For whether a particular policy suits your business, somebody who holds an Australian financial services licence — this site does not, and does not advise.

Sources

Moneysmart (ASIC) — General guidance on business insurance from the regulator’s consumer site.