Insurance for Small Businesses: a guide to protecting your ...

Insurance for Small Businesses: a guide to protecting your business

Contents

Foreword

5

Why do I need insurance?

6

Insurance required by law

6

Other types of insurance

8

A. Protection against compensation

9

claims and legal action

B. Protection for your property

10

C. Protection for your employees

12

D. Protection against financial risk

13

Buying insurance

14

Managing your risks

16

Insurance: working for you

20

Useful contacts

22

4 Insurance for Small Businesses: a guide to protecting your business

Foreword

Running a business is risky. That is one of the reasons we both admire the millions of people who launch, lead and work for small businesses up and down the country. They often invest their own money as well as their time, talent and energy. Between them, they create vital jobs, provide essential services and generate significant wealth for the country.

The insurance industry exists in order to help these companies manage their risks and claims for losses when things unfortunately go wrong. So we are delighted to support this very helpful guide to the different types of insurance that are available.

Insurance is an essential safety net. The floods of 2007, for instance, hit many businesses hard, not just through physical damage but also through the interruption to trading that followed. Insurance helped to put these businesses back on their feet and pay the cost of the damage.

Every day we also learn about fires or other incidents that can rip the heart out of a business. And, of course, businesses have financial obligations to

compensate their employees and customers that can often only be met through their insurance policies.

The insurance industry is providing more advice for employers to assess and deal with the risks that they face. After all, good risk management leads to lower rates of claims. And that, in turn, should lead to lower costs and premiums.

Some of these insurances are compulsory and others should be considered on their merits. Again, this guide provides a valuable starting point when considering which types of insurance would be right for you. Businesses will of course want to make their own judgement about the advice in this guide.

The Government and the insurance industry want to work together to ensure that Britain's small businesses flourish. This booklet is an important step towards that goal.

Pat McFadden Minister of State, Department for Business, Enterprise and Regulatory Reform

Stephen Haddrill Director General, Association of British Insurers

6 Insurance for Small Businesses: a guide to protecting your business

Why do I need insurance?

This section takes you through why you need insurance to protect your business.

As an employer, you are legally required to have Employers' Liability Insurance. If you use motor vehicles for your business, you are legally required to have Third Party Motor Insurance.

But buying other types of insurance can be much more than a sensible precaution ? they can make your business stronger, safer and more efficient. Insurers help you to identify the wide range of risks you face every day. They help you to put systems in place to control those risks and prevent them from turning into serious setbacks. When problems do arise, insurers provide financial help to continue doing business, and get you back on track through replacement, repair or reinstatement.

Insurance required by law

You are required to have Employers' Liability Insurance if your business has employees.

If your employee is injured at work, or becomes ill as a result of the work they do for you, insurance covers the cost of compensation to a claimant and legal fees. Employees injured due to your negligence can seek compensation even if your business goes into liquidation or receivership.

By law, your insurance must cover at least ?5 million but, in practice, most policies offer at least ?10 million. Only very few businesses are not legally required to have Employers' Liability Insurance ? you can get advice on this from the Health and Safety Executive website.

Your policy should cover all conventional employees, contract, casual and seasonal staff as well as temporary staff, including students or others on work placements. If your organisation involves volunteers, advisers, referees or marshals you should tell your insurer.

The Health and Safety Executive is responsible for enforcing the law on Employers' Liability Insurance. You can be fined up to ?2,500 for each day that you do not have appropriate insurance.

You are required to have Third Party Motor Insurance if your business uses motor vehicles.

If someone is injured or their property is damaged as the result of a collision caused by you or your employee, insurance covers the cost of paying their claim. By law, your insurance must cover at least ?1 million for property damage, and an unlimited amount for personal injury. Most businesses take out:

Third Party, Fire and Theft

This includes the same level of protection as third party, but also pays for loss of or damage to your vehicles by fire or theft.

Or

Comprehensive

Motor policies usually come with a 24-hour accident recovery helpline, and may provide courtesy vehicles while your vehicles are being repaired.

If motor vehicles form a core part of your business's trade, you will need a specific policy, for example:

? for small vans (commercial vehicle goods carrying policy);

? for taxis;

? for coaches (and other vehicles with more than six seats) which people pay to travel on or put their goods on;

? for vehicles used for farming, or on building sites and industrial premises;

? for motor traders, including car sales and repairs.

Driving without insurance is a serious offence. If you or your employee is caught driving uninsured, the police may seize and destroy the vehicle. If you are convicted, you could face between six and eight points on your licence, and a maximum fine of ?5,000, and you could be disqualified from driving.

This includes the same level of protection as third party, fire and theft, but also provides cover for your vehicles against accidental damage. Comprehensive policies will often cover personal belongings left in your vehicles and medical expenses, and may provide personal accident benefits, for example, if the driver dies or loses their eyesight. They may also cover goods or tools carried in connection with your business.

In 2006, insurers paid out ?8 billion in motor claims.

(Source: ABI)

8 Insurance for Small Businesses: a guide to protecting your business

Other types of insurance

As well as the insurance you are required to have by law, there are other insurance products that can protect you in various ways, including:

A. Protection against risk of compensation claims and legal action

You have legal responsibilities towards your customers and the general public. If members of the public are injured, you could be liable to pay compensation if you or your employees have done something wrong, failed to do something you should have, or broken the law. Liability insurance covers the cost of compensation to the claimant and legal fees. In addition, Legal Expenses Insurance can pay for the legal costs involved in pursuing or defending other claims.

B. Protection for your property

Buildings and their contents are essential to any business. Insurance provides financial protection when your property is damaged through events like burglary, fire or flooding. In addition, Business Interruption Insurance will cover you for any periods when you cannot do business as normal because of damage to your property.

C. Protection for your employees

Employees are an invaluable asset to every business, and there are various insurance products that will help provide financial security and medical assistance for you and your employees in the event of illness.

D. Protection against financial risk

Insurance provides a safety net for financial risks, such as customers with bad debts or untrustworthy employees.

Over the next few pages, we set out the types of risk you may face, and the insurance products you need to cover them.

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