OUR GUIDE TO BUSINESS INSURANCE
Having the right insurance is vital, and we make it our business to ensure that your business has the cover it needs.
GET IN TOUCH
Call us on 01273 789 979
Before we deal with the different types of insurance, let us first say a few words about risk management. All public companies in the UK are required in their Annual Report to detail their assessment of the key risks facing their business. Additionally, they are then required to detail the steps that management has taken to mitigate these risks. The regulator, the Financial Conduct Authority (FCA) oversees this process.
While it is not an accounting requirement for small businesses or firms in start-up to undertake this process, it is very much best practice to do so. In any case, if you employ more than five people, you are required to record your risk assessment findings for health and safety and fire procedures. Rather than seeing the risk gathering process as a burden, it should inform your business and, as you will see, it will have positive implications with regard to insurance.
When undertaking a risk management exercise, you should first identify all the material risks that your business faces. For every type of risk identified, you should draw up an action plan to minimize the damage that such a risk event would cause.
A good examples of a mitigation plan would be the creation of a business continuity plan which details how your business would manage in the event of a disruption. Comprehensive employee procedures are another example that would help you minimize the risk of an accident or injury occurring as a result of an employee error.
Those that already practice comprehensive risk management within their companies should discuss this with their insurance companies or brokers. Insurers will often reward this behavior with lower premiums or lower excesses on policies. This is logical behavior on their part. A well-controlled business is likely to be less risky to insure than one that has not actively considered or mitigated its risks.
For a small business, insurance can at first, appear daunting. With some thought however, it needn’t be. This guide is aimed at helping you negotiate the various types of insurance that are available. Some types of insurance you will find are non-negotiable, others you will need to assess on their own merits.
The insurance industry exists to help you manage your risks and in the event of a loss, pay claims against those losses which otherwise could be catastrophic for a fledgling business.
Most non-life insurers will be able to assist you in insuring your business. If your business is more complicated in nature you can also employ a broker who will act as a middle man between your business and the insurer. It can be worth shopping around for cover as the insurance industry is a competitive place. Be sure though, to talk to the insurer about all the risks you wish to insure as more competitive rates can be achieved by combining the insurance with one insurer.
Let us now turn our attention to the types of insurance that you should consider.
THE NON-NEGOTIABLE COVERS
For businesses of certain types, some insurance is required by law.
Employers’ Liability Insurance
It is the law in the UK that if you employ staff you must have minimum employers’ liability cover of £5m.
Only in the event that:
i) your employees are family members or
ii) they work abroad are there exceptions.
If you require cover but do not obtain it, you are liable to be fined up to £2,500 per day. Note that you must also display your certificate or at least have it available for inspection. Failure to do so can also be punishable with a fine of £1,000.
Employers’ liability cover (EL) covers you in the event that your employees become ill or die as a result of working at your premises. Being sued for compensation can be expensive not only in terms of any payout but also as a result of legal expenses.
Some things to bear in mind:
Check that your policy covers temporary labour or holiday workers if this applies to you.
Note that employees injured while driving for the company are often not covered by EL insurance and further cover is required for this.
Former employers can bring legal actions against a company even after they leave its employment. It is important to keep your old certificates.
Unlike other types of insurance, an insurer cannot refuse to pay out on an EL contract even in extreme circumstances such as you are negligent or have provided inaccurate information. Their only sanction will be to refuse you further cover.
Commercial Motor Insurance
If you use motor vehicles for your business, you are legally obliged to have motor insurance cover. It is your responsibility as the owner of the business to ensure that you have adequate insurance to cover all company vehicles.
If your employees are using their own vehicles on company business you are not obliged to pay for their motor insurance cover. However, you are required to ensure that they have the minimum cover required by law. It is worth asking to ensure that your employees have disclosed the fact that they are using their personal vehicles for work purposes to their motor insurance provider.
Commercial motor insurance is much the same as private motor insurance. There are the usual three main types of cover:
Third Party Cover - This is the minimum cover required by law. It covers you against costs that arise as a result of injuries to other people and damage to their vehicle.
Third Party Fire and Theft - This type of policy covers everything that basic third party polices cover with the added protection against your vehicle being stolen or destroyed in a fire.
Comprehensive Cover - This type of insurance, as the name suggests, is the most comprehensive cover available and in addition to third party fire and theft, also covers:
o injuries to other people and damage to their vehicle
o medical expenses and accidental damage
o the cost of replacing your vehicle's contents
Note that if you run a business which, by its nature, involves use of vehicles, for example a fleet of couriers or a taxi business, specialist motor policies are available and you should talk to the provider about the specifics of your business.
THE NEGOTIABLE COVERS
Commercial Property Insurance
Commercial property insurance covers the cost of repairing or rebuilding your business premises. Additionally it covers losses to your fixtures, fittings or stock in the event of a risk loss such as:
As with your normal home insurance, cover is broken down into building and contents cover.
Buildings insurance covers the cost of repairing or rebuilding your business premises if damaged or destroyed. Though buildings insurance is not required by law, it is strongly suggested that you take out cover. Even if you own your building outright, you will still require cover in the event that you need to repair or re-build your premises. If you rent your premises, it is the duty of your landlord to ensure that buildings cover is provided. You may however wish to discuss with them the level and detail of cover required to ensure that you believe it is sufficient.
Remember that the important value to insure when looking at your building is the cost to rebuild it, not its current market value.
Unless you have specifically requested it, and therefore paid an additional premium, most commercial building insurance will not cover you for:
General wear and tear – everyday things that happen to your property over time such as carpets or wall coverings discoloring.
Acts of war or terrorism – buildings insurance policies usually exclude damage caused by terrorism, but specialist insurers can provide cover for commercial properties for an additional premium. See later in this guidance for more detail.
Your commercial contents insurance covers you for the cost of replacing lost, damaged or stolen items within your premises. Importantly for some businesses, this includes items of material or finished goods held in stock.
It is important to discuss the valuation of your stock and equipment with the insurer or broker when arranging cover. If your business has any cyclical variations, be sure that these peak periods are covered.
In the event of a significant loss event hitting your business, for example a large fire, the loss of your buildings or stock may actually be of secondary importance in a financial context. Your inability to trade will hit profits for some time after the event and there may also be additional costs to cover in terms of third party fees and business continuity plans.
You can insure against these losses by taking out business interruption cover. This type of policy will cover you for the loss of sales and profits during the period that you are unable to operate. You will need to discuss your individual requirements with your insurer as well as opening your books to them to assess what level of cover and premium to apply.
Professional Indemnity Insurance
If your business provides other businesses or individuals with professional advice, you should almost certainly consider professional indemnity insurance (PI). This type of cover protects you in the event that your advice turns out to be incorrect and further, it results in financial loss for your clients.
Banks, insurers themselves, law firms, accountancy professionals, technology professionals, management consultants and architects are just some examples of businesses that require PI cover.
PI cover is a specialist area of insurance and policies can differ quite widely. Be sure to read carefully the terms of the cover to ensure that you have all the cover that you require. Consider:
Does the policy comply with the standards set by your profession’s governing body or professional association?
Are errors and omissions, damage from latent faults and claims arising out of a failure to meet time limits all included?
Are stipulations provided on what to include, and what not to include in your client contracts?
Professional negligence claims can be complex and often run for a protracted period of time. Legal bills can be very significant. Ensure that you know exactly what both your obligation is, and what those of the insurer are, in the event of a claim.
Product Liability Insurance
If your business designs, manufactures or sells physical products rather than professional services, product liability insurance maybe something for you to consider. Your business may be held legally responsible for any injuries to people or damage to property caused by a faulty product. It is important to note that you could be held liable for faulty products even if you did not manufacture them.
Your liability stretches to cover any situation where:
Your business’s name is on the product.
Your business repairs, refurbishes or changes a product.
You imported the product from outside the European Union.
You cannot identify the product’s manufacturer, or the manufacturer has gone out of business.
As with most types of insurance, you are better covered if you have good business and risk management practices in place. If you are an on-seller of goods and do not manufacture, your cover should protect you provided you have undertaken good business practices such as:
Being able to prove that the products have not been changed and were therefore faulty when they were supplied to you.
Ensuring that your customers are given adequate safety instructions and warnings about misuse.
You include terms for the return of faulty goods to the manufacturer.
You have put in place contracts with your manufacturer that guarantee product safety, quality control and returns.
All of this is supported by good quality control and record-keeping systems.