Small business insurance: An essential guide

From liability insurance to property protection, small business owners must be aware of the measures to enact to protect their company. Here, we look at what cover is out there and speak to four businesses that put key policies in place.

Having small business insurance protection you can trust is crucial to your business’s future and your own peace of mind, but so many company owners place the issue of insurance too low on their list of priorities.

Businesses need clear advice and guidance on the types of insurance that are relevant to their needs. But what insurance should you go for? Some measures are required by law, such as employers’ liability insurance for those businesses taking on staff. But there is a variety of additional policies that may be appropriate, ranging from cyber insurance to business interruption insurance and terrorism cover.

In this guide, we clarify the insurance options to consider and speak to small companies in a range of sectors that took out policies to suit their particular needs. Some of these businesses were unsure in the beginning about how to get covered but, through helpful advice from insurance professionals, were soon afforded the knowledge to put the right insurance provisions in place.


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Here, the Association of British Insurers gives a comprehensive insight into the compulsory and optional insurance policies you need to be aware of as a small business owner.

Whether you are a business owner, an independent professional or self employed, getting insurance in place can help to protect you and your company against unexpected costs. There is a wide range of insurance products available offering varying degrees of cover, so ensuring that you have the correct amount and types of insurance for your business is incredibly important.

Compulsory insurance

Some types of business insurance are required by law. If you are an employer, you are legally required to have employers’ liability insurance, which covers the cost of compensating employees who are injured or become ill through work. This type of insurance will not only cover the cost of compensation to your employee but also the cost of any associated legal fees.

The cost of this cover will depend on the nature of the business, the number of people employed and your previous insurance claims history. It is important to make sure that, as a responsible business owner, you shop around to get the best cover for your business. This should include the policy that is most appropriate for your business and not just be based on cost.

Many businesses use motor vehicles for travel and to deliver or pick up products. A vehicle that is used for a business is just like a personal vehicle in that it is a legal requirement to have motor insurance.

The minimum amount of cover needed is ‘third party only’, which covers the cost of injuries and damage to other vehicles, although most will choose to cover the costs of damage to your own vehicle as well. If your business involves employees driving company vehicles then make sure that you have them covered – it is required by law.

“Ensuring that you have the correct amount and types of insurance for your business is incredibly important”

If your employees drive their own vehicles while working for your business, you are not obliged to pay for their insurance; however, it is advisable to make sure that they have the minimum level of cover required by law. Also make sure to check that they have correctly declared to their insurer that they are using the vehicle for business use, as not doing so will invalidate their cover.

If motor vehicles form a core part of your business, such as a taxi company or a courier service, specialist motor insurance policies may offer more appropriate cover. Not all insurance is compulsory, but buying other types of insurance can be much more than a sensible precaution – they can make your business stronger, safer and more efficient. Insurers can help you to identify the wide range of risks you face every day, and perhaps some that you didn’t even know about.

They can help you to put systems in place to control those risks and prevent them from turning into serious setbacks. When problems do arise, insurers provide financial help to continue doing business, and get you back on track through replacement, repair or reinstatement.

Liability insurance

While employers’ liability insurance covers the cost of compensation to employees, there are other claims that businesses need to protect themselves against. Owners of small businesses should consider public liability insurance to cover the cost of compensation to members of the public for injury, death or damage as a result of negligence.

Similar insurance products to consider include product liability insurance for compensation to the public as a result of a fault in one of your products and professional indemnity insurance, which covers the cost of compensation to clients if your professional advice has caused them to lose money.

Making sure that your business is protected against unexpected liability claims will help provide piece of mind, so that you can focus your efforts on your business.

Property protection

The physical structure of a business premises and your business stock are also very important components to protect. Unexpected damage and an inability to continue operating from the premises can arise from fire, flooding, burst pipes, theft and subsidence. While it is not a legal requirement, it is highly recommended that if you own the building or have stock and equipment there then you purchase insurance to cover these assets. Business interruption insurance is usually sold as additional cover, but can be crucial to business survival should you be unable to continue trading as a result of damage to your premises.

Cyber insurance

Digital assets are now increasingly important for businesses of all sizes and can also come with new risks. Cyber insurance is becoming increasingly vital for businesses to protect against malicious cyber attacks and non-malicious cyber incidents that compromise computer systems. Cyber insurance can provide cover for business interruption caused by a cyber attack or incident, data breaches, cyber extortion, damage to digital assets, media liability and some third-party costs.

Many policies offer a ‘360o service’, which helps you assess your cyber risks to protect against a cyber attack or incident, and provides near-immediate 24/7 incident management and support from cyber forensic specialists to assess your systems, identify the source of any breach and suggest preventative measures for the future.

Protection insurance

Employees are a business’s most valuable asset, and making sure that your business and employees are looked after should anything happen to them is a priority. Life insurance and critical illness policies pay out lump sums to your employees or their nominated loved ones if they die while working for you or contract a critical illness covered by the policy. Income protection pays a regular benefit in cash to a person who cannot work because they have had an accident or are sick. Many policies will provide back-to-work services to support the employee in their steps towards recovery and eventually getting back into work.

These policies are important to consider if you are self employed, as well as if you have employees, as if you are out of action then it is likely that your income will be impacted too.

Specialist areas

Depending on what kind of business you run, there are more specialist areas of insurance that you may wish to consider, such as money insurance, which replaces stolen money belonging to your business, or trade credit insurance, which protects your business against the risk of you not being able to pay your debts because your customers cannot pay their debts to you.

See also: Do I need retail insurance for my small business?

Conclusion

Business insurance is usually sold as a package, combining a number of different policies under one premium, so you should shop around to get yourself the best deal and the best cover. Remember that the cheapest policy may not always be the best. No one can predict the future, but it is always best to prepare yourself as best you can for any unexpected circumstances.

Case study: Purple Cubed

Jane Sunley

Jane Sunley, CEO and founder of employee engagement consultancy Purple Cubed, reveals how she has added to initial cover of employers’ liability, public liability and professional indemnity over the years.

We provide expert advice and solutions (including technology) to any business wanting to harness the power of its people. My operational and recruitment/people experience turned out to be the perfect combination for providing a pragmatic, business-focused approach.

Getting the insurance basics in place

When we started, we made sure we had adequate insurance though nothing extra as cash was tight. This included employers’ liability, public liability and professional indemnity.

Over the years, we’ve added terrorism cover and insurance against cyber fraud. We’ve stayed away from key man cover, though, due to its high cost. In my experience, as long as you can pay your premiums, it’s possible to find the right insurance even for a small business. Many insurers will allow interest-free monthly payments, which is helpful.

I was fortunate in that I had good contacts from my previous life – people I could trust to advise me well. We’ve never had to make a claim, though that hasn’t meant we’ve downgraded our level of insurance. There are always risks and the unexpected, so it’s better to be overcovered than under.

“We’ve never had to make a claim, though that hasn’t meant we’ve downgraded our level of insurance”

As a technology business, our greatest risk is linked to cyber data phishing and hacking, especially as we’re cloud based. We’ve therefore taken out specialist insurance to protect us against such attacks, with a cover of £1 million per policy period.

Other risks for us are the value of contents taken offsite, such as laptops and tablets. Our people are out and about daily, so ensuring we have the right cover for loss, theft or damage is important. Finally, we like to take on work experience students, but some policies don’t cover young people while on-site. We’ve made sure that we have a policy which does, so that it doesn’t impact upon our ability to provide
these opportunities.

Getting to grips with the cover you need

I would encourage appointing a specialist to help you decipher what you need and at what level. Especially with public liability, you need to know the minimum cover required for your industry, as it does vary. Also, some clients expect a specific level of insurance to work with you, so it’s important to check you meet these requirements.

I’d also say that cyber insurance is a must nowadays, and not just for tech businesses. The amount of data we can possess about our customers is vast, and the risk of hacking is very real. It’s not overly . expensive, around £2,000 to £3,000 per annum, and is definitely a worthwhile investment.

Case study: No Brainer 

Lee Cullen, co-founder of creative agency No Brainer, discusses the cover he put in place, and why indemnity insurance in particular is a key policy for the company.

Along with my colleague, Gary Jenkins, I established No Brainer in April 2015. Back in December 2014, I left a full-time position at a Cheshire PR agency to become a freelance practitioner, and Gary had done the same thing about six months earlier, leaving his role as vice president of communications at a leading UK financial services provider.

Having the right insurance in place for our business was always going to be important, especially as we’re working with some major UK brands, so it was something we ensured was ready from the very beginning of No Brainer. The key insurance policies we’ve had in place are employers’ liability insurance, public liability insurance and professional indemnity insurance.

We were taken through things step-by-step over the telephone to ensure we had the right policies and the right level of cover in place for our company, and we review these every year to ensure they’re up to date and reflect on where we are as a business. The process was quite straightforward.

We work in the insurance industry right now with a few clients of ours, so we understand the value of protection. You might think we would say this, but there are some fantastic deals out there if you look hard enough. I think it’s important – as with all policies like this – that you spend the time making sure the cover is adequate for what you need, while affordable and giving you peace of mind.

No claims as of yet

We’ve not had to call upon our insurance policies during our first two years in business. We’re an experienced team and we have a number of processes in place to ensure the accuracy of our work, but of course we appreciate that mistakes can still happen. As we’re in the business of reputation management, a lot of our work involves the creation of content in the form of news releases, social media content, video, imagery and other formats.

“We work in the insurance industry right now with a few clients of ours, so we understand the value of protection”

We’re sharing all of that with a range of key influencers and journalists across multiple industries on behalf of some major brands, which is why things like professional indemnity insurance are so important for us.

Our expertise lies in PR, social media and content marketing so, like most other business owners in our sector, our time is much better invested in managing the day-to-day operations for our clients. I think we’ve always been quite good at identifying the things we need help with and pulling in the right people when required. Business insurance definitely falls into this category, and we took advice from a couple of trusted contacts before we considered policies, the right level of cover and the right way to go about sourcing them.

For small business owners in particular, I think there’s a tendency to try and manage everything inhouse, which is probably down to our entrepreneurial spirit! But I’d definitely advise other business owners in our sector to seek the help of an expert to ensure the policies they take out match their requirements.

Trying to self-manage something like that could leave a business paying too much in premiums or, worse, exposed to unnecessary risk.

Case study: Laura Pearman Photography

Laura Pearman

Here, photographer Laura Pearman talks about how a significant insurance claim she made for loss of data underlines the importance of small businesses ensuring that they have comprehensive cover.

I got into photography in a big way when I was backpacking around the world. After working full time in a portraiture studio, I started my own photography business in 2012. I had also spent a bit of time working in insurance when saving up for backpacking tickets. While I would never claim to know all there is to know about it, I would say that you must make sure you are properly covered when you want to be a professional in any field – I’ve seen a lot of horror stories.

I didn’t feel comfortable even setting up my professional Facebook page as a photographer without first having my insurance policy all secured. Somehow, I didn’t feel as though I was legitimate without that proper cover in place. For my very first policy I went about getting the three different kinds of cover I knew I would need for my business: professional cover in case my professional practices came into
question; public cover for if anyone ever got injured (or claimed they were) under my supervision; and ensuring that all of my new camera equipment was covered.

Making the claim

Unfortunately, I have had to claim for a temporary loss of data. I was out shooting a singer and model one night in the middle of a derelict part of town. The only way to light the scene was to use a really ropey generator in the boot of a friend’s car. I can remember everyone there laughing at the amount of fumes the generator was kicking out. On the shoot, one of the flash heads failed, but I had two spares with me so we pressed on, and the session came out great.

The next day, I was looking into the failed light. I couldn’t fathom out what was wrong with it, so on changing the fuse I switched it on and my whole studio fuse box tripped. This caused my hard drive to fail and I lost all of my backed-up image library. I had to claim to get the light repaired and the data securely recovered, and then implement a new data back-up system. It was stressful, but there were many lessons learnt.

In the claim process I had to chase the insurance firm to find out if they accepted elements of proof and decisions made from my IT supplier. It was very much a case of me having to take full control of the situation, but this is the case with any insurance claim.

Highlighting the importance of insurance

The experience has illustrated that insurance is incredibly important to my business, and I know that without it my team and I are at far too much risk to begin to imagine. However, with that being said, I also know that I am not the right person to go over the details of a policy with a fine-tooth comb. So if you are like me, I would recommend you get someone who is better at this to help you with finding the right policy and provider for what you need.

“Some clients want to do something risky; then I need to arrange for a one-week insurance add-on”

In order to ensure that my kit cover is at the right amount each year, I carry out an in-house audit of my own equipment, which I introduced about two years ago. This is a great opportunity to identify anything that needs to be fixed, sold or professionally cleaned, as well as checked over for its current market value.

This gives a real number to the exact value of what equipment needs to be covered in time for when the insurance policy needs to be renewed. The reward for this task is always making money on unused and sold-off kit.

Another element for me is the client brief. Sometimes I might have a client who wants to do something really ‘risky and fun’ for a shoot, but I then need to arrange for a one-week insurance add-on, or we might need to explore what kinds of insurance they have with their business to ensure that, should the shoot go awry, we are all covered.

So, a final piece of advice is to never be afraid to ask new clients and colleagues in the B2B world to show you a copy of their policy.

Case study: BeecherMadden

Karla Jobling

Karla Jobling, founder of job site BeecherMadden, was familiar with the cover she needed when she started the company in 2010. Here, she discusses what considerations business owners need to make when putting policies in place.

I started the business in 2010. Before that, I was already working in recruitment. I had experience in a recruitment agency and in an HR team, so as a client. By having experience on both sides of the fence, I knew I understood what clients want better than most other recruiters.

Getting insurance in 2010 was not a problem. Luckily, I had enough experience to know what sort of cover I needed. I knew I needed professional indemnity to cover my work and that of any contractors I would employ.

Employers’ liability insurance is a must when you have staff and public liability is also standard for most companies. The difficulties were deciding on the other types of cover that are out there. Key man insurance and terrorism cover can be really useful for London-based businesses, but you have to work out what options you have.

Also, working out what you need to do to stay compliant is important. For instance, any non-standard contracts have to go to my insurer, so you need to be aware of the detail.

Insurance in simple terms

I have never had to make a claim, although I have come close. A cup of coffee was spilt on a plug socket and we had an electrician tell us that they needed to do major works and we would not be allowed in the building for about three weeks. Luckily, he had overreacted, and we were back in the office the next day.

“Knowing that I have cover for certain situations, such as me being unable to work, really gives me peace of mind”

However, I was able to speak to my insurer, who told me exactly what I could claim for and how I could get alternative offices. It was presented in simple terms, not insurance speak, and there wasn’t any game-playing over what I could and couldn’t claim for. Apart from risks that are standard to any business, in recruitment we also have to insure any contract staff and their work. This is totally out of our control, so insurance is important. These contractors also have their own insurance, but we need to make sure that the amounts all line up with our liability to the client.

And it is important that we keep on top of the contractors’ insurance, to make sure that their cover doesn’t lapse and that the chain is complete.

Peace of mind

My insurance is done all in one go, at the same time of year, so it is easy to renew and arrange. Knowing that I have cover for certain situations, such as me being unable to work, really gives me peace of mind. Make sure you have what you need to meet your clients’ needs. Some clients insist on bigger limits than others, so don’t get caught out with that. As long as you are meeting the needs of your clients and legal obligations, you can then think about the extra policies you might need.

Cyber security cover is becoming more important and could save you a lot of money and headache if the worst does happen. It also isn’t that expensive. Consider your travel insurance needs too. It can be a lot more expensive and time consuming arranging cover for each trip, instead of just taking out an annual policy.

 

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Small business insurance