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Small Business Insurance is Key to Minimising Risk and Maximising Reward

The skills set required to start a business may often seem to be juggling (countless to-do lists), fire-fighting and crystal ball gazing. Yet one of the most important and yet sometimes overlooked competencies vital to any business survival is actively dealing with more mundane tasks such as small business insurance. Building a business can be extremely rewarding, but without adequate protection in place the shiny new empire may be left vulnerable. From day one as an entrepreneur it is essential to have the right business insurance in place. Here we look at why this is and the types of protection you need to procure.

Why insure?

Starting and running a business can be both risky and rewarding. Taking out adequate and appropriate business insurance can help minimise the risks and protect the rewards. In life things sometimes go wrong, things which are often outside our control. The same is true in business. Insurance provides an essential safety net for businesses which become the victims of unexpected negative events, safeguarding them from the impact of any resulting losses. Some types of business insurance are compulsory, for example if you employ staff you must have employer’s liability insurance. Other types of insurance may be required depending on the nature of the industry. All insurance should be considered within the context of a well thought through risk management strategy.

Compulsory insurance

Employer’s liability insurance- This type of business insurance is mandatory under UK law if the organisation employs staff. The purpose of employers’ liability insurance is to protect the company against potential claims made by employees should they injure themselves on business premises. The policy must provide cover of at least £5 million and must come from an authorised insurer. Businesses which are not properly insured can be fined as much as £2500 per day. An employers’ liability insurance certificate should be displayed on the business premises.

Motor vehicle insurance- If the business requires the operation of a motor vehicle, all such vehicles must be adequately insured. This insurance should extend to all users of the vehicles and protects the business in the event that an accident occurs. Employees using their own vehicles for business purposes generally secure their own insurance.

Additional requirements

Public liability insurance- Regardless of how careful a business owner is, accidents can happen, and when they do there is potential for members of the public to be at risk. Most business recognise this risk and as a result take out public liability insurance – the most common type of insurance purchased by small businesses in the UK. Although not a legal requirement, public liability insurance should be viewed as essential, particularly if members of the public interact with the business in any way. This could include visiting the company premises or even receiving deliveries of the company’s products. When taking out public liability insurance it is important to disclose what type of business is being operated as this will facilitate the identification of a suitable policy.

Product liability insurance- Companies which design, manufacture or supply products should seriously consider taking out product liability insurance. Designed to protect businesses in the event of a faulty product resulting in a customer injury, product liability insurance covers the cost of any associated compensation payments. Policies usually cover compensation relating to personal injuries as well as loss of or damage to property. Businesses generally opt for policies which provide cover of between £1 million and £5 million.

Professional indemnity insurance- This is similar to product liability insurance but relates to professional services such as those provided by accountants, engineers and surveyors. It protects the service provider in the event of a client claiming inadequate advice, services or designs have been provided. Policies generally cover legal costs and expenses related to claims as well as compensation payable to the client if it is found that their claim is legitimate.

Buildings and contents insurance- Most businesses recognise the need to protect their premises. Generally standard building insurance contracts cover risks such as fire and lightning, storms, floods, riot and explosion. Separate insurance is required to protect the contents of the building, for example machinery and stock. Business interruption policies are also available which insure against the loss of profit and higher overheads which may result from machinery being damaged.

Risk management

Developing a proactive approach to managing risk is an essential part of identifying the right types and levels of business insurance cover. Working out the risks which are most applicable to your enterprise means you can do as much as possible to mitigate those risks and secure adequate protection from them. Taking action on business insurance could be a key determinant of whether your business will survive through future events. So take that action – as German poet Johann Wolfgang von Goethe once said,

“Knowing is not enough; we must apply. Willing is not enough; we must do.”

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