What insurance does my business need?
Starting and running your own business is a big risk. Entrepreneurs put up their own capital, and as such, they’ve invested a lot into making their ventures thrive. Despite this, insurance is often overlooked, as more seemingly more important tasks take precedence. For small and medium enterprises (SMEs) there are few more business critical tasks than covering your business should the worst happen.
What might seem a daunting task at first is actually straight forward in practice. Ticking off this task will give you peace of mind, and the security needed to push forward with your business. In this article, we will answer the following questions:
- What insurance policies are SMEs required to hold by law?
- What insurance policies should SMEs and its directors hold as good practice?
- What advice should I seek before taking out insurance for my SME?
What insurance policies are SMEs required to hold by law?
All businesses in the UK are required to hold employers’ liability (EL) insurance. This covers your company should an employee claim they have suffered an injury or illness as a result of their work. This policy will cover any legal costs or compensation the business may incur.
Businesses that don’t have EL can be fined up to £2,500 per day. Should the Health and Safety Executive come knocking, it’s important to have the relevant paperwork ready to go, any potential issues could become very costly, very quickly.
Notably, family run businesses are exempt from this requirement, however it might still be sensible to hold a policy. Should a loved one become injured on the job it could seriously damage the business, and leave them without legal recourse to money while they’re off work. It may be tempting to cut costs, but it’s still in your family, and the business’s, best interests.
What insurance policies should SMEs and its directors hold as good practice?
While these policies are not mandated by law, they are still commonly held by SMEs. Some of these policies will be more suited to customer-facing businesses, and may not be suitable for B2Bs, and vice versa:
Public liability (PL) insurance: This covers any injury or illness sustained by a member of the public on your business’s property. This is particularly important for customer-facing businesses such as restaurants or retail stores, where a slip or fall by a punter could result in hefty compensation claims and legal fees. However, B2B operations should also consider it, and many larger operations require their clients, subcontractors or partners to hold this policy before doing business.
Contents and portable equipment insurance: Businesses of all shapes and sizes hold valuable assets that are integral to their operations.
These two independent policies cover those items meaning you won’t have to halt operations as you try and replace lost, damaged or stolen goods. Your contents insurance will protect assets that are kept on your business premises at all times. This includes furniture, desktop technology such as computers, servers or internet infrastructure or industry-specific technical equipment.
Your portable equipment insurance will typically cover items such as: computers and laptops, mobile phones, tablets and cameras.
Professional indemnity insurance (PI): Vital for businesses that provide service or advice, PI covers your business should a client claim to have suffered a financial loss as a result of your work. Again, some of your clients might insist on you holding PI before they consider working with you.
Directors’ and officers’ liability insurance (D&O): Also known as management liability insurance, D&O covers the named leaders of the business personally for alleged wrongful acts while operating on behalf of the company. This can cover the following:
- Breach of trust
- Breach of confidence
- Breaches of fiduciary duties to shareholders
- Employment practices and HR disputes
These claims can leave directors open to legal action resulting in large fines, and in some cases, a possible prison sentence. D&O will cover your legal costs in fighting these most serious of allegations.
Cyber liability insurance: Most businesses now hold both their own, and their customer’s data. In the case of a breach of your cyber security, you might be liable to compensate your clients, while also paying fines if GDPR has been breached. Some providers also help you get back online quickly should an attack disrupt your internet infrastructure.
Business interruption insurance: In the case of a catastrophe (e.g. a fire or flood on your premises) that halts your operation, business interruption insurance can help cover loss of work, or cover costs if you’re in breach of contract with a supplier or client.
This is by no means an exhaustive list. Certain industries will have their own requisite insurance policies. For example, in the life sciences sector we would recommend any business conducting R&D to seek out clinical trials, product recall, and intellectual property policies, to name a few. It is always worth spending time researching, and getting to know the specifics of your market, as well as covering off the general needs of any operation.
What advice should I seek before taking out insurance for my SME?
It is always a good idea to seek out the advice of a financial advisor before purchasing any policies. They will be able to tailor your coverage to your specific needs, as well as shop around for the best deals.
An accountant might also be able to help you pick and choose the more general policies. To find out how Pennyhills can help you implement an insurance plan that protects your business, get in touch.