SME Adviser Series: Insuring Your Business

Whilst most business owners understand the need for insurance, a surprising number of businesses are uninsured, under-insured, or insured with out-of-date policies.

As an employer, you are legally required to have Employers’ Liability Insurance. And if you use motor vehicles for your business, you are legally required to have Third Party Motor Insurance. However, the purchase of other types of insurance such as for fire, loss of profits, public liability, and product liability for example can be much more than a sensible precaution – they can make your business stronger, safer and more efficient. But make sure you have adequate levels of insurance cover.

Some of the more common types of insurance for SME businesses, as explained by the Association of British Insurers, include:

Protecting against risk of compensation claims and legal action

Employers’ Liability Insurance – as an employer you are legally obliged to have Employers’ Liability Insurance, covering the cost of compensating employees who are injured at or become ill through work. You can be fined up to £2,500 for every day you do not have appropriate insurance.

Third Party Motor Insurance – you are legally obliged to have this cover if you use motor vehicles for your business. This this is the minimum motor insurance required by law in the UK and it covers against costs that arise as a result of injuries you cause to other people and damage to their vehicles.

Public Liability Insurance – covers the cost of compensation to members of the public for death, injury or damage to their property which happens as a result of your or your employees’ negligence.

Product Liability Insurance – covers the cost of compensation to anyone who is injured, or whose property is damaged, because of a fault in a product you design, manufacture or supply. The Consumer Protection Act has placed a greater onus on anyone dealing directly with the public. Proof of negligence is no longer required; the fact that a product causes injury places the blame on the supplier.

Professional Indemnity Insurance – covers the cost of compensation to clients if your professional advice has caused them to lose money. Professionals such as solicitors, accountants, financial advisers, architects and surveyors may be required to have this insurance by their industry regulator.

Directors and Officers Insurance – covers the cost of compensation to a customer if a claim is made against one of your business directors or other staff (not if the claim is made against your organisation as a whole).

Environmental Liability Insurance – covers the cost of repairing any damage your business causes to water, land, protected plants and animals, or protected plant and animal habitats.

Legal Expenses Insurance – covers the cost of pursuing legal action or defending your business against legal action where this isn’t covered by your liability insurance.

Protecting your property

Buildings Insurance – pays for damage to your business buildings caused by fire, lightning, flooding and even earthquakes.

Contents Insurance – pays for damage to and theft of stock and business equipment.

Business Interruption Insurance – will cover you for any periods when you cannot do business as normal because of an event resulting in damage to property on your premises, such as an essential machine breaking down, or flooding.

Terrorism Insurance – can be added to your buildings insurance, and is normally provided on an all-risks basis, including: biological, chemical, radiological and nuclear contamination; and the losses to your business as a result of the disruption. Terrorism insurance does not include the risk of viruses damaging your computer, or losses caused by hoaxes.

Engineering Insurance – pays for repair or reinstatement of machinery, including computers. By law, many items (such as boilers, lifts and lifting machinery) must be inspected regularly by a qualified person.

Goods-In-Transit Insurance – pays for goods that are lost, stolen or damaged while they are being moved in your vehicle or by a carrier. There may be a limit on how much is covered for each vehicle or any one batch of goods being sent. You should put special arrangements in place for moving cash.

Glass Insurance – pays for the replacement of all internal or external glass at the premises, including sanitary fittings.

Frozen Food Insurance – pays for the replacement of food following the breakdown of refrigeration units up to a certain age or failure of the public electricity supply.

Protecting your employees

Life Insurance – allows you to protect an employee’s dependants if he or she dies while working for you.

Private Medical Insurance – covers the cost of private medical care for your employees.

Critical Illness Insurance – allows you to protect your employees if they contract a critical illness covered by the policy.

Income Protection Insurance (sometimes referred to as permanent health insurance) – pays an income each month to any of your employees who cannot work because they are ill or injured.

Personal Accident and Sickness Insurance – pays a regular benefit in cash to a person who cannot work because they have had an accident or are sick.

Business Travel Insurance – can be arranged to cover medical expenses, cancellation or curtailment costs, loss of money or baggage.

Protecting against financial risk

Money Insurance – replaces stolen money belonging to your business, whether from your premises or in transit.

Trade Credit Insurance – protects your business against the risk of you not being able to pay your debts because your customers cannot pay their debts to you.

Key Person Insurance – protects your business against losing income when a person in an important position dies or becomes disabled.

Employee Dishonesty/Fidelity Guarantee Insurance – protects your business against your employees stealing money or stock.

Loss of Licence Insurance – protects your business against the reduction in the value of your interest in the premises or the business as a result of nonrenewal or withdrawal of your licence for reasons beyond your control.

Kidnap and Ransom Insurance – is particularly relevant to SMEs that conduct business in high risk countries. This insurance can reimburse ransom and associated costs.

Do your homework

Your existing insurers may not necessarily continue to offer you the best value for money, so shop around. An independent broker can be invaluable in establishing the best cover at the most competitive level of premium. They will scour the market to find the best policy suited to your business, at the very best price.

Nick Starling, Director of General Insurance at the Association of British Insurers, explains: “All businesses should seek professional advice from an insurance broker and/or their accountant. There is no ‘one size fits all’ as every business is involved in different activities with different insurance needs, but a good broker will help tailor the cover to your exact needs.”

Having the right level of insurance is absolutely vital for SME businesses in helping them get back on their feet and trading again should the worst happen. If you have any queries relating to this matter, we are able to put you in touch with companies within our extensive network of contacts who will be able to assist. It’s part of our commitment to supporting SME businesses by providing holistic business advisory services.

Contact Steve Govey or your usual Beavis Morgan Partner.

Source: Association of British Insurers