Overview of insurance for business

There are numerous types of insurance cover available for businesses. Some must be taken out by law, others aren’t mandatory but are highly advisable for all businesses, while still others may be appropriate depending on the type of industry you’re in.

The cost of insurance generally depends on your insurer's assessment of the likelihood of having to pay out on your insurance policy and the amount they might have to pay in the event of a claim.

In deciding what sort of cover you need, get professional advice from a regulated insurance company or broker. Insurance brokers, advisers and other insurance intermediaries are regulated by the Financial Services Authority. You have the right to ask an intermediary how much commission they get for selling the product or service to you. If you want to deal directly with an insurer, check they are a member of the Association of British Insurers. 

Business premises insurance

Your business premises needs to be insured for the full rebuilding cost (reinstatement) rather than just the market value – a chartered surveyor can help you work out the reinstatement value.

Most standard business premises insurance policies cover you against risks such as fire; storm and flood damage; explosions; riots; vandalism; and damage caused by vehicles. You might want to opt for "all risk" insurance which covers you for any other damage or loss specified in the policy, including accidental damage. Wear and tear, electrical or mechanical breakdown, or any gradual deterioration specified in the policy will probably not be covered.

If your premises are regularly left empty you should tell your insurer this and cover is likely to be restricted to fire only and won’t extend to things like vandalism.  

Contents insurance

You need separate insurance cover for damage to or loss of your business’s contents such as machinery, stock, etc. Theft will also be covered if there is evidence of forced entry. You can opt for replacement as new insurance or indemnity insurance, which subtracts the cost of any wear and tear when settling a claim. You can also take out business interruption cover for loss of profit and higher overheads resulting from, e.g., damaged machinery. 

Employers' liability insurance

You are required by law to take out this type of cover if you have any employees. It provides cover for claims brought against you by workers who have been hurt or become ill as a result of working for you. It is your duty to display your certificate of insurance or provide access to an electronic copy where employees can easily access it.  

Public liability insurance

It’s not a legal requirement to have this kind of insurance but it is advisable as it protects you if claims are brought against you for damages and legal costs resulting from injury, death or damage to property caused to members of the public by any of your business activities. 

Product liability insurance

This type of insurance protects you if consumers or their property are harmed by any product that you design, produce or supply. Businesses in high risk industries such as food, toys or electrical should definitely put this on their priority list. 

Specialist insurance

There are specialist insurance policies available to suit different types of businesses. Professionals, for example, should consider professional indemnity insurance which protects them if they are sued for negligence. If you export or import goods, you’ll need goods in transit insurance, while travel insurance is a must if your employees travel frequently – particularly abroad. Other specialist policies include:

• Commercial legal insurance - covers legal expenses arising out of a change in legislation or penalties resulting from non-compliance.
• Credit insurance - covers you if one of your debtors goes bankrupt and can’t pay up.
• Engineering insurance - provides specialist cover for machinery, including computers.
• Data processing insurance - for electronic media and electronic data processing equipment.
• Fidelity guarantee - covers you for loss of cash or stock due to employee dishonesty.

Motor insurance

If you or anyone working for you uses a vehicle in the course of your business ensure you have a valid motor insurance policy. Check that all vehicles owned by your business are covered to the appropriate class and/or, if employees use their own cars for business use, that their insurance is extended to cover this. If you have several vehicles you could opt for fleet cover which should give you a better deal. 

Directors' and officers' liability

Since a business’s directors and officers have a number of powers, duties and responsibilities – covering issues such as data protection, health & safety, accounting, fraud and negligence – it is advisable to take out liability insurance to cover them in case they inadvertently step out of line, giving rise to a claim for compensation. Such a policy would also cover the cost of legal fees, though any policy may be nullified if the acts were deliberate.

Importance of insurance cover

In harsh economic times every business is looking to cut costs and insurance cover is often one of the first to be considered for the chop: it’s costly, intangible and doesn’t add anything to the bottom line. However, businesses that are considering putting insurance on the redundancy list should remember that in times of recession people are more likely to steal from you or sue you than in boom times so taking away your insurance safety blanket could prove a very costly mistake.