Business owners face certain levels of risk when they begin their venture – this may be from economic issues, such as periods of instability or business debt, or the result of environmental disasters or social movement. Owners will therefore seek to ensure that they are well protected when incidents begin to affect their business negatively. Even with well-established companies and businesses, there is an increasing and prevalent requirement for their businesses to be protected, as their sector may require certain forms of insurance to be in place in the event of disasters or to protect their employees and key figures of their business model.
Insurance exists in many forms – providers will not give clients one form of insurance that will cover every eventuality, as this would be prohibitively expensive and unnecessary. The challenge for business owners and businesses in determining which insurance is right for them. Similarly, it is a challenge for businesses to determine when they need to have insurance and to know what the consequences of running the business are.
This topic will cover what forms of insurance exist, whether the type of insurance is necessary for your business and will address the issues which the insurance may be relevant.
What is Business Insurance?
Businesses are generally quite a risky endeavour – there are costs to running the day to day and often things may go wrong when you are starting. They are also affected by things that may be outside the business owners’ control; such as natural disasters or market fluctuations. As a result, businesses must put safeguards in place to prevent their business from being harmed. This is done through insurance, which is an important consideration for many businesses, and in some cases is compulsory under law.
Failure to pay for compulsory insurance may result in many penalties being levied against your business for the time it was operating without insurance, and if an accident were to happen, then your business would suffer from paying compensation to anyone who was injured or set back by the event. Owners may then face terms of imprisonment for their conduct. It is therefore very important to address changes to insurance when such incidences happen.
The following is a list of common business insurances. Not all these types may be necessary for businesses to run, but must be considered, especially if your business runs within a specific sector or industry which requires you to work in a risky enterprise, such as cutting edge technology and cyber or finance.
Types of Business Insurance
| Insurance Type | Uses and Necessity |
| Public Liability | Public Liability is a form of insurance that protects the business from claims of legal expenses or compensation if members of the public, such as clients or suppliers or the man on the street get injured on your premises or if you carry out work on client sites. In the event of an accident that occurs during your work, such as a faulty installation that causes property damage, you will only be required to pay a small sum of money compared to exorbitant legal and compensation fees. This is not a necessary form of insurance, though it may be quite desirable for businesses who rely on foot traffic or working onsite in clients homes to provide goods and services. |
| Employers’ Liability | Employers’ Liability helps employers pay compensation if an employee becomes injured or ill due to the work they perform for you. This is a compulsory form of insurance, requiring the policy to cover at least £5,000,000. This must come from an authorised insurer. Failure to display your Employers’ Liability insurance or refusal to make it available on-demand will result in a £1,000 fine. If you do not have this insurance at all, and you carry out work in the business, you can be fined £2,500 every day that you do so. It is therefore very important that if you do have this insurance before you conduct any business with employees under your care. |
| Product Liability | This form of insurance ensures that in the event of a person sustaining injury or damage to a property caused by a product you have sold, such as machinery or food, is covered. Sometimes it is necessary even if you have not sold the product, such as when your business has its name or brand on the product. This means that compensation claims will be reduced by the level of insurance you can claim on your policy. This is not a legal requirement, however, some businesses such as suppliers, distributors or retailers will require you to have it. If you are found to be liable for injury, damage or death caused by one of your products you can be sued. |
| Professional Indemnity | Often referred to as professional liability insurance, this will cover the legal expenses incurred from defending yourself from claims that advice or services you have provided to your client was faulty, inadequate or led to some avoidable circumstance. This may happen when you are providing services such as contracting or consulting with the public, providing designs or as a freelancer or self-employed professional. This is a regulatory requirement with some industries – meaning that although it is not a legal requirement, you may be prevented from practising and may be fined if you do so without this insurance. |
| Business Interruption | Business interruption protects against loss of income during periods where you cannot carry out business as usual due to an unexpected event, such as the recent pandemic. It aims to put your business back into the same trading position it was in before the event occurred. This may be from damage caused to your premises or the breakdown of essential equipment, or people not being able to access your business premises. This is not an essential form of insurance, and it is up to the owner to decide whether to take business insurance (it is not compulsory). It is often included as an optional add-on to business insurance packages. |
| Business Property Coverage | Otherwise known as Business Buildings Insurance, this form of insurance covers instances of theft, fire, burst pipes, riots, accidental damage, subsidence, business interruption, stock and cash on-premises and legal cover. If you are working from home then the standard business policy may not apply. Please check your policy or enquire with your insurer to make sure you are covered. This is not a legal requirement, but may be necessary for some businesses. |
| Key-man | Key-man insurance protects a business when an important member of the business’s essential operation, such as a CEO or product manager is unable to work. It is essential to protect the business from loss of income when a person with a specialist skillset required for the business is unable to work. If this happens, the insurance will compensate for any losses to ensure that the business can run as it would normally. This is not compulsory but may be useful if your business model relies on important members performing essential skills that no one else can do. |
| Credit Risk | This protects the policyholder in the event of another business or customer becoming insolvent or failing to pay its trade credit debts. Insurers will cover the cost that is owed to your business and will ensure that you will not suffer a loss as a result of creditors. This is not a necessary form of insurance, though may be useful if you work in sectors dealing with a large volume of clients with a high risk of default, such as construction or loans. |
| Cyber | A specialist form of insurance designed to protect businesses from cyber-attacks, data breaches on work computers and malicious attempts to corrupt, damage or steal data. This is not a compulsory form of insurance, but if your business primarily deals with using, sending or storing electronic data which is vulnerable or sensitive, then getting cyber insurance may provide financial support if an incident occurs. |
Conclusion
The most common forms of insurance are often where businesses will foresee issues or risks in conducting their work. It is therefore important for all business owners to determine the extent of the business they run, the risks associated with other businesses they interact with and the problems that ensue when risk is not properly addressed. In the event of a natural disaster or economic plummet, businesses must cover themselves so that they do not suffer any losses while they are providing goods and services. We recommend looking at a variety of insurance providers to see which one is the best for you.
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