You’ve worked hard to establish your business. You have a lot of time, money, knowledge, experience and effort invested in it and a reputation to protect. So it makes sense to protect your business and its assets from all eventualities – some you might not even have considered as relevant to you. The insurance industry exists in order to help you manage potential risks and claims for losses when things unfortunately go wrong, as they sometimes will.
Insurance is an essential safety net. Imagine the effect on your business of your premises being flooded, not just the physical damage but also the interruption to your ability to work that follows. Businesses can also have financial obligations to employees and customers that can only be met through their insurance policies.
Some insurance products are compulsory, but most should be considered on their individual merits according to the needs of your particular business.
Compulsory Insurance Required by Law
If you have employees, no matter how few, than you must by law have Employer’s Liability Insurance. If your employee is injured at work, or becomes ill as a result of working for you, Employer’s Liability Insurance covers the cost of compensation paid to them and both your and their legal fees. Employees injured due to your negligence can seek compensation even if your business goes into liquidation or receivership.
You must, by Law, have insurance cover of at least £5 million, but most policies offer at least £10 million. Your policy should cover all employees, full and part-time, permanent and temporary, contract, casual and seasonal staff, students on work placements and even volunteers.
The Health and Safety Executive is responsible for enforcing the law on Employers’ Liability Insurance and can fine you up to £2,500 for each day that you do not have appropriate insurance.
If you use a vehicle in connection with your business, you must have Class One Business Use included in your Motor Insurance policy. This is something that is often overlooked, you assume that your car is insured for you to drive so that’s it covered – but most private cars are insured only for ‘Social, Domestic & Pleasure’ purposes which includes commuting to a permanent place of work but NOT any use in connection with a business. You must have Class One Business Use included on your motor insurance policy if you (or an employee) are going to use your vehicle for any journey in connection with your business, such as visiting clients, attending interviews, collecting stationery or attending a conference.
Driving without adequate insurance is a serious offence. If you are caught driving uninsured, the police may seize and destroy your car. If you are convicted, you could get between six and eight points on your driving licence, a maximum fine of £5,000 and you could even be disqualified from driving. Not worth the risk for the usually small increase in insurance premium for increasing your cover to Class One!
Voluntary Insurance Products
Protection Against Claims & Legal Action
Professional Indemnity Insurance covers you against claims from customers who may have lost money, contracts or reputation as a result of bad advice or sloppy work provided by you. Some professions such as Accountants, Solicitors, Financial Advisors, and Architects are required to hold Professional Indemnity Insurance by their industry regulators.
Product Liability Insurance protects you against claims for loss or injury as a result of a fault in a product you have designed, manufactured, sold or marketed.
Directors and Officers (D&O) Insurance covers the cost of compensation should a customer claim directly against you or one of the Directors or Officers of your company, rather than against the company as a whole. This only applies to Ltd Companies, PLCs, LLPs etc., not to sole traders.
Public Liability Insurance covers you against claims for compensation from members of the public for property damage, injury or death occurring as a result of your negligence. ‘Public’ in this definition means persons not employed by you but who are visiting your premises, taking part in an activity you have arranged or watching something that you have organised.
Legal Expenses Insurance is often included as an add-on to other policies such as those previously mentioned. It covers the cost of legal representation to pursue or defend a claim which is not covered by your liability insurance, such as for an employment tribunal. Solicitors and barristers costs, Court fees and expert witness fees are all covered. A Legal Expenses Insurer will usually provide a free helpline and free legal advice so may be the first port-of-call if you think a problem has occurred.
Protecting your Property
Buildings and Contents Insurance Even if you are working from your home you need to ensure that your place of work is covered in the event of damage. Like Motor Insurance, Buildings and Contents Insurance for the home usually excludes anything used for business purposes, so in the event of a flood your insurers may refuse to pay out for a damaged computer if it is primarily a business machine. It may be necessary to take out separate cover for all business assets, or ask your existing insurers if it can be covered as part of your existing policy.
If you have separate business premises, it is essential to have adequate cover for the building and it’s contents. You must be insured for the full rebuilding cost, although this is usually less than the market value of the property. If you have an office in shared premises, check that the landlord has the building insured. Even in shared premises, responsibility for insuring the contents of your office is yours, not the landlords – make sure you have adequate cover, preferably new-for-old especially on expensive computer equipment.
Business Interruption Insurance may be necessary if you would be unable to do business due to damage to premises or equipment for a prolonged period. This policy pays an amount to cover the shortfall in pre-tax profit and any increased costs of running the business as a result of the mishap. Business Interruption Insurance is usually offered as an extra when you buy Buildings or Contents Insurance.
Financial Risk Protection
Trade Credit Insurance protects your business against you being unable to pay your debts because your customers cannot pay their debts to you. Also, credit insurers provide free services such as assessing your customers’ credit-worthiness and collecting debts you are owed.
Key-man (Key Person) Insurance protects your business from the loss of income which would result from a key person being unable to work for a prolonged period or even having to leave the business due to illness, injury or death.
Protecting your Employees
How much do you value your employees? Offered as ‘perks’, these products can make a job offer very attractive or an existing job difficult to walk away from. Usually only offered by larger companies with high turnovers due to the cost. Such products include Life Assurance, Private Medical Insurance, Critical Illness Insurance, Income Protection Insurance (sometimes referred to as permanent health insurance), Personal Accident and Sickness Insurance and Business Travel Insurance.
Where should I get insurance from?
When buying any insurance product, it makes sense to shop around for the best policy. Many insurers now deal directly with businesses either by phone or through websites and a Google search will turn up many alternatives for you to try. Unlike domestic insurance, most business insurance products can’t be found on the price comparison websites (such as Money Supermarket, Compare the Market etc.) due to the bespoke nature of most risks involved. It can therefore be easier to obtain your insurance through an intermediary such as a broker or a trade association who may have a recommended panel of insurers whose products it trusts. Always ensure that the insurer or intermediary you use is authorised by checking on the Financial Services Authority’s website.
How do insurers calculate my premiums?
Insurers calculate the premiums they charge according to the likelihood of you making a claim, and the likely size of that claim. To assess this they look at the risks your business faces and what the consequences will be if a problem occurs. For example, Employers’ Liability Insurance is priced according to the chances of an employee suffering from an injury or disease due to your negligence – office work is by it’s very nature low-risk although you might want to make sure your employees have posturepaedic chairs to avoid claims for aching backs!.
To calculate your Buildings and Contents Insurance premiums, insurers look at the risks from events such as fire, floods and theft (so your postcode will play a large part in determining your premium), the systems you have in place to control those risks, and how much it would cost to repair any damage. Buildings occupied by multiple businesses are higher risk and therefore more expensive to insure.
For Business Interruption Insurance, insurers ask you to estimate the maximum length of time you would need to get your business working normally after the most serious damage the policy covers. Your insurer will also ask you to estimate your annual gross profit before you take out the cover.
How much cover will I need?
Your insurer or intermediary will help you calculate how much cover you need for each insurance product. To help you decide the appropriate level of cover, you will need to assess the impact the event you are insuring against would have on your business. You can exclude certain risks from the cover if you think they do not pose a threat to your business.
Don’t forget that any claim you make is likely to be subject to a policy excess – an amount deducted from any pay-out. Think about how much excess you are willing to pay, as you can often reduce your premium by choosing a higher excess.
What can I do if I’m unhappy with my insurer?
Firstly, tell your insurer or intermediary that you are dissatisfied, as most complaints are resolved this way. If you remain dissatisfied with the final result of your insurer’s or intermediary’s formal complaints procedure, take your complaint to the Financial Ombudsman Service (FOS). The FOS service is impartial, confidential and free to consumers and small businesses with a turnover up to £1 million. Insurers and intermediaries are bound by FOS decisions, however if you are unhappy with their ruling you are free to reject their decision and take legal action. Information about how to take your complaint to the FOS is usually found in the small print of your Insurance Policy documents.
Association of British Insurers (ABI)
020 7600 3333
BritishChambers of Commerce (BCC)
020 7654 5800
0845 600 9006
Confederation of British Industry (CBI)
0207 379 7400
Federation of Small Businesses (FSB)
01253 336 000
Financial Ombudsman Service (FOS)
0845 080 1800
Financial Services Authority (FSA)
0845 606 1234
Institute of Insurance Brokers (IIB)
01933 410 003
Carina Baylis is a Virtual Assistant and owner of Alchemy Virtual Assistance Ltd.