A Guide to Business Insurance
What You Need to Know
- Most business owners find they can get a cheaper business insurance package using the services of an insurance broker, rather than dealing directly with providers.
- All businesses are legally required to have employers liability insurance and motor insurance (if the business uses vehicles.) Businesses such as consultancies, legal practices and financial advisers also need professional indemnity insurance.
- You must display your certificate of employer’s liability insurance in your premises and, even after it’s expired, you should keep hold of it, in case of claims by past employees.
- Even if your employees use their own privately owned and insured vehicles, you must check that their insurance extends to business use, or you may not be covered.
- If your business has any level of interaction with the public at all, it is a good idea to have public liability insurance wich will protect you from claims made against you by non-employees.
- You do not need to buy all the policies your business requires separately. You can save money by buying them from one provider in a specially tailored package.
- You can lower premiums by demonstrating that you are taking action to ensure your business operates safely. You can also trade a higher excess for a lower premium.
Employer’s liability cover is the only form of insurance that is a legal requirement for all businesses. However, motor insurance is necessary for any vehicles used for business purposes and, for certain trades, professional indemnity cover is also needed.
There are many other kinds of policies that are optional, but advisable. In this article we covers the most common forms of business insurance which can be purchased through a broker, or direct from an insurance company or bank.
Finding a Provider
The vast majority of business owners choose to obtain insurance through the services of a broker. This is because brokers are often able to use their specialist knowledge of the insurance industry and the business sector in question to help get you an insurance package that matches your businesses needs and include any specialist cover you may require.
Though brokers are usually able to get you a better insurance deal than you would find yourself, you should remember that most earn their living from gaining a commission from the company they recommend you to. Bear this in mind and remember you have the right to ask questions about your relationship to the insurance provider. Be sure to choose a broker with a good knowledge of the industry you’re involved in.
Employer’s Liability Cover
Even if your workforce is made up of only one person, you are legally obliged to have employer’s liability insurance. This covers you to meet claims for sickness and accidents suffered by members of staff while in the workplace. If you are a director of a limited company you will also be classified as an employee, so by purchasing cover you are protecting yourself as well as your staff.
The statutory minimum level of cover is £5m, though the government recommend getting a higher level of cover and most providers offer £10m worth as standard. Once you have insurance you must display your certificate of employer’s liability in all your business premises. Once the certificate has expired, you must keep hold of it in case past employees take action against your firm. As of 2008 this is no longer a legal requirement but is strongly advised. If, for example, a disease only became apparent in an employee years after being caused by your business's working practices, you’d need the insurance certificate relevant to the time.
Since 2008 it has been legal to ‘display’ this document electronically, as long as employees are able to access it and know how to do so.
The only exception to needing this type of cover is if none of your employees work in the UK, though as stated above, in the case of a limited company the director also counts as an employee.
This cover is generally intended to cover things such as accidents in the work place. Many businesses who either depend on their employees health to keep operating, or who want to attract potential employees with benefits packages, choose additional forms of cover to protect personnel.
Popular examples include; health insurance in case of illness, life insurance in case of death, income protection insurance and personal accident cover. These options cover employees in their life outside of work as well and are worth considering if your business would lose out through their absence due to a mishap.
Motor insurance is the other compulsory form of cover for a business with vehicles that are used on roads and in public places. This, of course, applies to the firm’s vehicles, not staff members’ private transport.
Third party is the minimum level of necessary cover, which will insure against the costs of damage to another driver’s vehicle, though not the vehicle belonging to the business.
If you’re vehicles are considered an asset, you’ll want to cover them comprehensively. Even if the vehicles used are owned and insured privately by employees, be sure that their insurance extends to business use.
Public Liability Cover
No business should ever operate without adequate public liability cover. It is designed to protect owners and operators of businesses from a wide variety of claims including those arising from death or injury to visitors to your premises and damage to property caused by your operations. The amount of cover required depends on the nature of the business and is usually at least £1m.
Even if your business has little or no interaction from the public, this form of insurance can still be useful. For example if a fire started in your premises and spread, your business could be vulnerable to claims against it.
Product Liability Cover
This will protect you against claims by people other than your employees for injury or physical damage caused by products made, sold or repaired by your business.
The Consumer Protection Act 1987 placed a greater onus on businesses dealing directly with the public. Proof of negligence is no longer required. The very fact that a product causes injury is enough to place the blame on the supplier.
This kind of cover offers protection against physical damage to, or loss of, the premises in which your business operates and the equipment and stock kept there. The building should be insured for the full cost of rebuilding, site clearance and all relevant professional fees, such as surveying and legal bills. You may also wish to consider insuring your goods when in transit, especially if the goods spend a lot of time on the road.
Loss of Profits/Consequential Loss
Linked to insurance for property is insurance for your profits, which could suffer if your firm had to reduce or even cease trading in the immediate period following a fire or theft.
The insurer pays for loss of gross profit as a result of reduction in turnover. You should take into account a dependency on particular suppliers or customers who would seriously affect your business should they suddenly be unable to operate. You also need to think about how long it would take to rebuild your turnover to its original level.
Directors’ and Officers’ Liability
Your company can buy directors’ and officers’ liability cover to protect the personal assets of directors and executive officers and to meet their legal costs. The policy will reimburse the individual for personal liability arising out of a “wrongful act.” Or it can compensate the company itself, where it has reimbursed a director or officer for a personal liability arising out of a wrongful act.
This protects advisers such as management consultants, lawyers and accountants against legal costs and damages arising out of advice or recommendations given in their professional capacity.
This is an absolute must for any businesses that trades on the professional reputation and expertise of its employees. Indeed, for legal practices and business offering financial advice, it is a legal requirement.
Such a policy is for protecting your business against the costs of bringing or defending a legal action, and is complementary to employer, product and public liability and professional indemnity insurance.
It will usually cover legal and other costs incurred in actions brought by the Inland Revenue and Customs and Excise, employment disputes, contractual claims and alleged breaches of “fiduciary duty”.
As any business owner knows, cash flow can be severely hampered if liquid assets, such as money owed by debtors, suddenly disappears. Credit Insurance protects your business in the event that money you’re owed cannot be recovered if, for example, the owing party goes bust.
This type of insurance protects your business against the cost of dishonest acts, such as theft, perpetrated by employees.
Packaging Your Policies
You needn’t buy separate policies to cover the many and varied possible risks of running a business. You can opt for a package that bundles cover together in one, specially tailored, easy-to-administer policy – usually at a lower price than buying the same covers separately.
However, as your business grows, your insurance needs could change, meaning a packaged policy may not be the best solution. It is advisable to use an insurance advisor to regularly review your insurance needs as your business grows to ensure you stay on top of things.
Shopping for the best value policy is, of course, the first step. Under-insurance will result in a proportionate reduction in an insurance claim and could damage the ability of your business to trade, or even put its future at risk. Over-valuation and insuring for risks you do not face will mean wasted premiums. Always get multiple quotes.
Keeping Premiums Down
Another way to save is by keeping premiums down. The simplest way of doing this is to demonstrate that your business is low risk. Ensure that you have strong health and safety in place, show that you have contingency plans in place for emergencies, such as fire and take extra security steps to protect your assets.
Alternatively, you can trade a lower premium for a higher excess, which can be worthwhile if you are confident that no accidents will occur or that, even if they did, you would avoid claiming out of fear of a premium hike. On the other hand, if you know your business would be threatened by having to pay a large excess if the worst happened, then it is better to pay a high premium. There's no point in having insurance at all if the amount of excess needed for a claim could put you out of business.
Losses and Claims
If you need to make a large or complex claim it is likely that your insurer will bring in an impartial loss adjuster to judge the claim and negotiate the pay out. However, for most claims you will need to take action to insure you can prove the value of the claim.
For example, you should keep documents that prove the worth of assets, even things as simple as receipts for office supplies, and take photos after accidents occur.
Be sure to file claims quickly as there is a time limit and after a set period your insurer may refuse to pay. If the claim relates to criminal activity, you must report it to the police immediately and get a reference number to provide the insurer with. Failure to do this promptly can also invalidate your insurance.
- If you use a van for businesses read this guide to getting a low van insurance premium.
- You can find insurance brokers through the BIBA.