A guide to the different types of business insurance
Every small to medium-sized business (SME) needs insurance to ensure they are protected against unforeseen risk. Whilst an insurance policy is unlikely to cover Covid-19 related business interruption claims, it is worth investing in business insurance as it can give you financial protection if something goes wrong when you are carrying out business activities.
Business insurance can cover everything from people to property. It can cover you against things like accidents, damage, professional mistakes, theft and legal fees. Some types of insurance are required by law, whereas others are optional but can protect your investment in your business. If you’re not adequately covered, you could risk hugely damaging financial losses should an incident occur.
The type of business insurance you need depends on the type of business you run and the risks you face. Here we look at some of the key insurances to consider and the protection they provide.
Building and contents insurance
If you have business premises, such as a shop or office, business buildings insurance should be a priority. If you rent the property, it is important to check with your landlord to see what’s already covered. If you work from home, business activities may not be covered under a standard home insurance policy so check your policy documents as you may need extra cover.
Business contents insurance is useful as it protects all the essential devices (for example, business IT equipment and tools) you need for the day-to-day running of your business. If these are damaged, destroyed, lost or stolen, this cover will pay the cost of replacements or repairs.
Now is a good time to review your business assets and make sure they are insured to their full replacement value. Completing this important step will ensure that your building and contents insurance policy is up to date should your property become damaged due to a covered loss, such as fire, flood or theft.
Business interruption insurance
Business interruption insurance (BI) is vital for virtually all businesses if they are to survive a major disaster, such as a fire or flood. BI protects the business from the break or reduced trading in their commercial activities and consequently being unable to maintain their turnover or income.
BI cover will maintain payments to employees, increased costs to the business such as renting alternative accommodation and any fixed costs.
Whilst you will not get cover for Covid-19 under a new insurance policy, some policies may include some form of cover for certain diseases.
The Covid-19 pandemic has accelerated digital transformation with millions of UK employees forced to work from home during several lockdowns – consequently, businesses are more aware than ever of the cyber risks they face. One way businesses can better manage the risks related to a data breach and reduce the significant cost that can result from them is by taking out cyber insurance.
Cyber insurance (also referred to as cyber liability insurance) covers your business in the event of a data breach or if your work computer system is hacked by an intruder.
If you transact business online or hold any personal client data, we would strongly recommend a cyber insurance policy that can help you following a data breach or internet hack.
Directors' and officers' insurance (D&O)
Directors’ and officers’ insurance, also known as management risks insurance, is designed to cover the cost of compensation claims made against your business’s directors and key managers (officers) for alleged wrongful acts. In general, it may provide insurance cover for claims arising out of actual or alleged breach of trust, breach of duty, neglect, error, omission, misstatement, libel, slander, breach of warranty of authority and wrongful trading.
Employers' liability insurance
This insurance is legally compulsory for all businesses that have any employees, more than one director of the business or engage labour-only subcontractors. By law, cover is required for at least £5 million. In practice, however, most policies provide a limit of £10 million. You could be fined a maximum of £2,500 for every day that you don’t have insurance. As an employer, you are responsible for the health and safety of your employees while they are at work and this insurance is designed to cover any compensation claims made by your employees for injury or damage that is caused by their work.
Fidelity guarantee insurance (Theft by employee)
From theft to rogue trading, internal fraud is a growing problem - and SMEs are not immune. One way to protect your business against fraud by an employee is fidelity guarantee insurance. This is cover which protects your organisation against the loss of money and/or property which you may suffer as a result of a dishonest or fraudulent act by an employee. Fidelity guarantee insurance can also be known as employee dishonesty cover. Please note fidelity guarantee insurance is normally an add on cover section to a property/liability insurance policy. We do not offer this cover in isolation.
Professional indemnity insurance
If you offer a professional service, such as IT, marketing or management consultancy, or have set up a graphic or interior design business, you may want to think about professional indemnity cover.
Professional indemnity (PI) insurance 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. PI insurance will also cover legal costs.
Public and product liability insurance
If your business works with third parties – such as clients, customers, suppliers, or other members of the public – then consider public liability insurance. It covers damages and legal costs should a member of the public be injured or suffer damage to their property as a result of your business activities and will protect your company against liability claims as it covers legal and compensation fees.
Additionally, product liability insurance can cover the cost of damage or injury caused by products you make, sell or repair.
How much does business insurance cost?
The cost of your business insurance will depend on several factors, including the type of business you run, what kind of insurance you need, and the cover levels you decide on.
For more information, or to request an insurance review and no obligation quotation, please contact our director of insurance, Richard Gorst.
Written August 2021.