That really is one of those “how long is a piece of string?” questions. Every business has unique features and therefore every business needs their insurance cover to be flexible and unique to match. Rarely does a “one size fits all” approach provide a perfect fit. Our advisers not only understand insurance but they also understand how business works.
There are essentially two types of insurance for businesses:
Compulsory Business Insurance
There are certain risks that you must insure for by law such as:
- Employers’ liability insurance: This covers claims for injury or illness incurred by employees in the course of their work. If you can hire or fire or direct the labour of someone, they are an employee. This is regardless of them being under contract – full-time, part-time or zero hours – a volunteer, an apprentice, a work experience student. There are some – but very few – exceptions. See full information here. Failure to have employers’ liability insurance in place is punishable by a fine of up to £2,500 per day. The limit of indemnity is a minimum of £10,000,000 regardless of the type of work undertaken. There is sometimes confusion because the Employers’ Liability certificate – a document which must be displayed where employees can see it – shows a minimum of £5,000,000. This is because cover is limited to £5,000,000 where terrorism is a factor. Higher limits can be purchased, although this is rare. This might be where a large number of employees are working at the same time in the same place. The premium rates are based on the perceived risk, so a woodworking machinist would be rated higher than an office worker at the same company.
- Engineering inspection: certain items of lifting or boiler plant must be inspected by law at pre-determined intervals. This is not insurance as such but an inspection contract although generally elements of insurance can be added if required. Unlike insurance, inspection contracts are subject to VAT at the prevailing rate.
- Motor insurance: third party liability: as with any vehicle used on the public highway, motor insurance is required for business vehicles.
- Public liability insurance: covers damage to third party property and injury or illness caused to people and is a legal requirement for riding schools and licenced aircraft. Although not a legal requirement, some professional bodies insist that members hold professional indemnity insurance in order to trade. These include, among others, veterinarians, accountants, surveyors, solicitors and so on.
Optional Business Insurance
That’s everything else. Now it’s a matter of what is important and for what you are prepared to pay. Again, every business is unique and certain elements have much more importance to the business than others. As with any individual, different businesses have different attitudes to risk. Some prefer to insure for all eventualities; some are happy to accept some risks as being a part of business life:
- Buildings insurance: if you own the building(s) that you trade from, whether they be offices, workshops, factories, stores etc. then you should have buildings insurance. The sum to insure for should be the cost of reinstating the business in the event of a serious event such as a fire. It is important to include an amount to cover removal of debris and any professional or planning fees required. The end figure may be different to the market value. If you do not own the buildings, make sure that your property owner has adequate insurance and that they have told their insurer what you are doing in their property. For instance, if they tell their insurer that it’s just offices but you are welding metal, making wooden furniture or manufacturing plastics, there is every likelihood that a claim will be rejected.
- Tenants’ improvements insurance: the property owner is only responsible for insuring what belongs to them so if you have made any improvements such as a fitted kitchen, fixed shelving, partitions or anything else fixed to the structure but which belongs to you and not the property owner, these need to be insured by you under this heading.
- Contents insurance: that is your desks, chairs, machinery, carpets and curtains. The usual term used by insurers is “machinery, plant and all other contents.” The sum insured should be the amount required to buy everything as new.
- Stock insurance: this can be items you have bought in to sell on or those that you have manufactured. The sum insured should be the amount that it cost you to obtain or manufacture those items, including any transportation costs. The difference between this and the price you would sell for is covered by the business interruption cover (see below). You may have responsibility for customers’ goods – a dry cleaning business is a good example of this.
- Public liability insurance: (see above): The limit of indemnity is whatever you need. Most insurers now offer a minimum of £2,000,000 although £5,000,000 is common. Businesses where there is significant manual activity such as builders or other trades should have a minimum of £5,000,000 whereas an office-based business may find £2,000,000 adequate. Again, higher limits are available according to need. Some policies are limited to accidents happening on the business premises so companies that do “work away,” for example a garden centre with a landscaping arm, will need to ensure that they have the correct cover.
- Products liability insurance: this normally comes with public liability at the same indemnity limit – although there is a difference. Public liability limits cover each claim without a limit to the total during the insurance year. Products liability covers each claim and “in the aggregate”, so if the limit is £2,000,000 that is the most that can be paid out for events in any one insurance year, regardless of the number of incidents. Products liability can be important even if you do not manufacture or alter any products. Retailers are legally the first port of call for any claim. Although, claims may be eventually passed on to manufacturers or suppliers, this can take a long time with no certainty that their insurer will pick up the tab.
- Professional indemnity insurance: up to now, we have been dealing with physical events. Professional indemnity is about the economic loss a business can inflict on clients by giving bad advice or by not fulfilling a professional expectation. An example might be an accountant failing to file a tax return on time, causing HMRC to fine the client. Indemnity limits tend to be lower than for other liability policies. You need to assess the maximum financial damage that you can do to a customer. It is not just the professions already mentioned that need this. Any business giving advice can make a mistake, such as a heating engineer miscalculating a boiler output requirement.
- Money insurance: cash is becoming less used now but is still an important aspect of many businesses. Typically cover is for on the premises during businesses hours, in transit to bank, in bank night safe at relatively low sums insured and in safe or strongroom for higher sums insured. There is also generally a fixed benefit for injury to staff during robbery.
- Business interruption insurance – also known as “loss of profits”: this is a major concern and one sadly overlooked by many businesses. If something happens at your premises such as a fire or flood, this is likely to affect your income and outgoings for some time. I mentioned above the valuation of stock for insurance purposes as being as cost price to you. Business interruption cover picks up the difference between that and the profit you would have made at the price you would have sold on. Other areas you need to consider are continuing standing charges for utilities, rent/ground rent, business rates. Do you want to pay staff to retain their services or let them go? All these are areas where you need to seek advice from your accountant and your insurance adviser so that you can formulate a business continuity plan. Post-Brexit, one of the issues that may cause a business to have problems getting back to work is the supply chain for machinery and plant. Many catering businesses, for example, use equipment sourced from the EU.
- Loss of licence insurance: nightclubs, pubs, licenced restaurants need to consider this. It covers – as it says – loss of licence such as may occur if there are complaints from neighbours. It will not cover loss of licence caused by you doing something illegal or in breach of licence terms.
- Goods in transit insurance: finished product being sent out and materials coming in can be lost or damaged in your own vehicles, those of suppliers and couriers or in the post so this can be a valuable area of cover. Where goods are sent to or sourced from overseas, marine cargo cover may be more appropriate.
Many years ago, the various types of policy were separate so that a company might have a fire policy, a wet perils (storm, flood) policy, a dry perils policy (theft, vandalism, impact), a business interruption policy and separate public and employers’ liability policies. Now, it is more common to have a business combined or package policy covering all or most of the above. Professional indemnity insurance tends to be kept separate as it is a specialist area and a general insurer may not be the best option.
Please talk to one of our advisers, who will guide you through what is available or call 01442 242400.