According to a recent poll of over 500 small businesses by Coverzones, 80% of the UK's SMEs claim to be facing greater insurance requirements as a result of increasing litigation and government red tape. In spite of these demands, 38% have been forced to cut their level of cover by current economic conditions, leaving many in a potentially vulnerable situation.

The reality is that business insurance always comes down to a traditional risk versus cost argument, but the financial turbulence of the economy has meant that, for many businesses, cutting cost has become more of a priority. Unfortunately, with the withdrawal of trade credit insurance and increased staff redundancies, litigation against businesses is expected to rise in the recession so, now more than ever, it is essential that business owners realise the importance of maintaining cover.

Our research demonstrated that only 26% of businesses claim to be covered for every eventuality and, at the other end of the scale, a further 26% claim only to have cover for what is legally required. If misfortune were to strike, not only are businesses themselves at risk, worse still, a significant proportion of small business owners could be risking their very homes if they have made personal guarantees against their businesses.

There are numerous insurance policies available for businesses but only one is legally required; employers liability. It affects all businesses beyond one-man bands and protects against claims arising from injury or illness sustained by employees. Professional indemnity protects your business against claims for loss or damage by a client or a third party if you have made mistakes or are found to have been negligent in some or all of the services that you provide for them. Professional indemnity insurance may also be mandatory in order to work with certain types of business, client or to be a member of a professional body.

one in seven small business owners are knowingly operating without adequate insurance cover for their businesses

However, even if business owners are aware of these policies, there is still a significant degree of confusion concerning their application. For example, numerous business owners are unaware that temporary workers and sub-contractors must be covered under Liability insurance and that they risk fines of £2,500 a day for failing to provide cover.

In addition to these policies there are numerous other policies available which can protect businesses. When faced with these most business owners will naturally ask, do I really need the cover? In many cases the answer will be no but our research also revealed that one in seven small business owners (13%) say they are knowingly operating without adequate insurance cover for their businesses.

In the uncertainties of today's trading environment it is important to consider your circumstances very carefully. If you are a business owner who anticipates making redundancies, it would be wise to suppose that employees made redundant in the face of the hardship of the credit crunch may be more likely to file a claim.

Unlike Employers Liability Insurance, businesses are not legally required to have Legal Expenses Insurance and the temptation for many may be to go without. This type of cover provides for the legal expenses that the policy holder may incur in employment disputes, as well as for any award of the other party's legal costs - exactly the protection that companies facing legal claims will require.

Similarly, many professionals do not realise that even if their current role doesn't seem to require professional indemnity insurance, they may still need cover to protect themselves from claims relating to work they have done in the past.

In general terms, however, there are three principles that SME owners thinking about cutting costs and looking for cheap business insurance would be wise to follow:

1. Don't think that you can manage without business insurance, particularly in the current economic squeeze where litigation levels are continuing to rise. It's vital to protect yourself and it can cost less than you think
2. Ask yourself outright; are the main risks to my business covered? If the answer is yes, what other cover do you have? Do you really need it?
3. Shop around. It may seem incredible but quotes can vary by tens of thousands of pounds. Don't be afraid to check whether you are getting good value for money out of your current policies? If not, challenge your broker or insurer as to why

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