This time last year, small firms in several parts of Britain faced disaster from devastating floods. Storm and water damage prompted more than £1 billion worth of insurance claims, according to the Association of British Insurers (ABI). SMEs were badly affected, losing £831 million overall, the Federation of Small Businesses said. And some were ruined because they were uninsured.
- Two out of five SMEs have incomplete business insurance, according to Aviva.
- One in five small firms has no insurance at all, Aviva calculates.
Insurance payments are often the first sacrifice when small firms hit hard times, but it’s a dangerous move. Whether to cover so-called acts of God, protect against theft of goods and equipment, or provide when key members of staff are incapacitated, insurance can make the difference between a company surviving or folding in a crisis. Business owners need to weigh up what cover they need, then look around for the best deal.
What insurance do I need?
There are specific types of insurance aimed at small businesses, and many enterprises opt for a package policy to include most areas of exposure. Typically, these are tailored to individual companies’ needs based on their industry. But there are two pieces of insurance businesses must have by law. These are:
- Employer’s Liability Insurance (ELI). If you have staff, this is a legal requirement, insuring them against illness or injury at work to a minimum level of £5 million. A handful of firms don’t have to take out this insurance – if you’re a sole trader or partnership only employing close family members, for example. The Health and Safety Executive (HSE) issues hefty fines to those that dodge insuring their workers.
- Third Party Motor Insurance. If motor vehicles are used in your business, this insurance is another legal must. Any injury to a person or damage to property caused by you or your employees while driving must be covered. Comprehensive policies will pay for the loss or damage of a car or van by fire or theft, plus any accidental damage to the vehicle, and often possessions stolen from it. Business owners can also get specific policies for vans, taxis, coaches, farming or building vehicles, or insurance designed for motor traders.
- Professional indemnity. This cover isn’t legally required, but if your firm offers a service such as accountancy, IT provision, architecture, legal or financial advice then you may need to take out a policy in case clients lose money or suffer as a result of your work. While the law may not demand it, chances are your industry body will.
Other forms of insurance may not be legally obligatory, but they can be hugely valuable to companies in particular circumstances.
- Property-related insurance. Buildings insurance was vital to firms affected by last year’s floods, covering as it does damage from fire, lightning, and flooding. Contents insurance pays for the damage to or burglary of stock and business equipment. Business interruption insurance can also be a lifesaver, covering any shortfall in profit resulting from an event that disrupts usual operations, such as an important machine breaking down. Bosses may also decide to insure against acts of terrorism, repairs to machinery and computers, or loss or damage to goods in transit.
- Protection against compensation claims, and legal action. If customers or other members of the public are hurt and you or your staff are to blame, or have broken the law, your firm could get a big compensation bill. You may opt for public liability insurance, professional indemnity cover, or even environmental liability policies, covering damage to water, land, plants, or animals. Legal expenses insurance is useful for defending the enterprise against action such as an employment tribunal.
- Protecting staff. Some employers invest in life insurance for staff, typically taking out group cover to insure all against dying at work. Private medical insurance is also popular as a staff benefit. Critical illness policies, and personal accident and sickness cover are further options for bosses worried for workers incapacitated while in their employ.
- Financial risk. An important individual being out of action for a time can be a big hindrance to a company, in which case key person insurance could be the answer. This pays out when an essential member of staff – or you, the boss – is seriously ill, becomes disabled, or even dies. SMEs can also insure against money being stolen from the business, or take out trade credit insurance to pay when you can’t cover bills due to being left out of pocket by your own creditors.
Buying by broker or direct
Because there’s so much to choose from when it comes to insurance, many company bosses use a broker for advice – almost 80 per cent of commercial insurance business is organised by intermediaries, according to the British Insurance Brokers’ Association (BIBA). BIBA is a good place to look for a recommended insurance broker, and the Financial Conduct Authority also has information on choosing an authorised and reputable broking service. Trade associations can be another useful resource, and may even organise industry-tailored policies themselves. This outside expertise can also be helpful in deciding the level of cover you really need. However, more SMEs are doing the legwork, and going direct to insurance providers with the help of online aggregators. Sites such as SimplyBusiness.co.uk, Comparethemarket.com, MoneySuperMarket.com , and Confused.com all have small business insurance sections that make weighing up options much easier – though it still takes time out of a busy business owner’s day. Once you’ve found an insurance provider, don’t sit on your laurels. Three-quarters of SMEs fail to shop around for a better insurance deal, according to recent research from constructaquote.com, though 68 per cent of those that did look elsewhere found a better deal. If you want to save money, make the effort to do some research when your policy comes up for renewal.
Managing and minimising risk
Even when you are insured, it’s better not to have to use it. Prevention is always better than cure, and avoiding disruption to your business should be a priority. There are a number of places SMEs can go for guidance on reducing their chances of mishap, accident, and injury at work.
- The Royal Society for the Prevention of Accidents has advice for small firms on safe work practice.
- The HSE has interactive tools on its website to help SMEs evaluate risk in the workplace.
- The Institution of Occupational Safety and Health also has a toolkit and information helpline for bosses who want to make work a safer environment.
Be sensible about the real risks to your business, take action to avoid them happening, but always make sure you’re adequately insured in case the worst happens. You want the peace of mind that if disaster strikes – a flood, illness, common theft, whatever it may be – your SME will have the insurance support to survive, and fully recover.
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