Running a small business is exhilarating but, especially in the current economic climate, can also be risky. It is vital all company owners take action to ensure the dangers to their businesses are kept to a minimum.
Having the right insurance in place is about more than having a safety net in case things go wrong. For many businesses it is a vital factor in deciding whether they can seize new opportunities as and when they appear. Insurance can help businesses be safer, stronger and more efficient. Insurance is not just a sensible precaution - it should be an essential part of your business plan.
Insurance required by law
You are required to have Employers' Liability Insurance if your business has any staff. If employees are injured at work or become ill as a result of the work they do for you, insurance covers the cost of any compensation you are liable to pay.
Employees injured due to your negligence can seek compensation even if your business goes into liquidation or receivership. By law your insurance must cover at least £5m but, in practice, most policies offer at least £10m. Your policy should cover all conventional employees, contract, casual and seasonal staff as well as temporary workers, including students or others on work placements.
You are also required by law to have Third Party Motor insurance if your business uses motor vehicles. If someone is injured or their property is damaged as the result of a motor vehicle collision caused by you or your employee, insurance covers the cost of paying their claim for damages. By law, your insurance must cover at least £1m for property damage and an unlimited amount for personal injury.
Decide which insurance product you need
Insurers usually offer a package of products to small businesses. Your insurer or intermediary will help you tailor a package to your specific needs. When applying for insurance cover you may be asked to complete a proposal form giving information to enable the insurer to assess your risk.
Details will include your name, address and type of business, previous losses and details of the risks to be insured. When completing the proposal form you must answer all questions fully and disclose all relevant facts concerning the business. Failure to disclose all relevant facts fully, whether specifically asked for or not, may entitle the insurer to treat the policy as invalid.
Working out the right level of insurance cover
To help you decide the appropriate level of cover you need to assess the impact the event you are insuring against would have on your business. You may want to exclude certain risks from the cover if you think they do not pose a threat to your business or are very unlikely to happen.
It is important to remember that when you are insuring your property and contents if you do not insure an item for a sufficient amount, the insurer may reduce the amount they pay by the percentage of the cost you had not insured the item for. For example, if you insured an item for 95% of its value you will only get back 95% of the value of your claim. Most policies make you pay an amount towards each claim. This is called the excess. Think about how much excess you are willing to pay - it will reduce your premium by choosing higher excess.
Insurance is priced on the likelihood of a claim being made
Insurers price the products they offer according to the likelihood of you making a claim and the likely size of that claim. To assess the likelihood of you making a claim they look at the risks your business faces, how well you manage them and what the consequences will be if a setback occurs.
Your Employers' Liability Insurance, for example, is priced according to the likelihood of an employee suffering from an injury or disease due to your negligence. Insurers do not send a surveyor to every small business as this would be very costly and therefore would increase premiums. To assess this risk insurers look at the size of your payroll, the usual health and safety risks your type of business faces and what systems you have in place to manage those risks.
Just as there are a range of risks that could harm your business there is a range of insurances to protect against them. Below is a selection of insurances that aren't compulsory, but should be consider by anyone running a small business.
Protection against risk of compensation claims and legal action
You have legal responsibilities towards your customers and the general public. If members of the public are injured you could be liable to pay compensation if you or your employees are negligent, have failed to do something you should have or broken the law. Liability insurance covers the cost of compensation and legal fees. In addition, Legal Expenses Insurance can pay for the legal costs involved in pursuing or defending other claims.
Protection for employees
Employees are an invaluable asset to every business. There are various insurance products that will help provide financial security and medical assistance for you and your employees in the event of illness. Staff absenteeism through illness or injury can put a strain on any business, so it makes good business sense to do all you can to help them recover from any illness quickly. It is also a valuable benefit for staff.
There is no doubt that insurance can make your business stronger, safer and more efficient and insurers can help to identify the wide range of risks your business faces every day. They can also help you to put systems in place to control those risks and prevent them from turning into serious setbacks. And, if the worst happens, insurers will provide financial help to allow you to continue doing business and get you back on track through replacement, repair or reinstatement. It is no exaggeration to say that without insurance your businesses existence could be in jeopardy should the worst happen: insurance is a safety net no business should be without.
For more information on insurance for your small business visit www.abi.org.uk
