Managing risk. your essential guide to protecting your business.

Transcription

1 Managing risk. your essential guide to protecting your business.

2 As a business owner, you need to be confident your company is covered against any potential risk. No matter how safe a working environment you maintain, there is always a risk that an employee could be injured at work leaving your business exposed to expensive compensation claims. What are the key risk areas within your business and what types of insurance do you need to protect your company against them? How can you review and manage your requirements in the most efficient and effective way? When it comes to buying insurance, what s the most secure and cost effective route to take? This guide will help you make the best decisions for your business.

3 Risks to your business We live and work in a growing culture of litigation. More people are aware of what they can claim and legal firms are increasingly pushing no-win, no-fee services. This means that it has never been more important to be fully aware of the legal risks affecting your business, so that you can put the right insurance protection in place. Whilst the phenomenal growth of the internet has created more business opportunity, it has also heightened competition and customer expectations, as well as introducing the new and growing threat of cyber-crime. This has increased pressure both financially and operationally, making it more important than ever for businesses to be adequately covered against such risks as loss of property, key personnel as well as potential downtime and interruption to your business. To help you identify the key dangers to your organisation, here are six main risk areas you need to be aware of: No matter how safe a working environment you maintain, there is always the risk an employee could get injured 1. Employees No matter how safe a working environment you maintain, there is always the risk an employee could get injured while working for the business for which they may be liable for compensation. Claims can also be brought against employers as a result of alleged discrimination, harassment and unfair dismissal, among other issues, all of which can prove time consuming and costly even if you win the case. Furthermore, advances in technology have resulted in an increase in remote and mobile working, to increasing risks to the business including loss of company equipment such as laptops and mobile devices which in turn can lead to customer data breaches or potential data theft. If you run a small or medium-sized business, you also need to consider the effect of a vital member of your team being absent through illness for a long period the key person concept. 2. Customers and customer data If you re in retail or another business where customers are invited onto your premises, or if your employees visit client companies, any injury that occurs to a customer or client property could be the subject of a legal claim. Furthermore, if you share knowledge or expertise, you are also at risk from any customers claiming that this advice had a detrimental affect on them or their business. The same goes for injury or damage relating to a defect in one of your products. However, it is not only your customers themselves, but also the information you hold about them that is a source of risk. If the security of this data was compromised, it could leave a company open to legal action under the Data Protection Act, which can result in significant fines and reputational damage. Furthermore, with customer and market data or business intelligence becoming more sophisticated and critical to company performance, any damage to it or the systems that store or manipulate it could have a major financial and operational impact. 2 Managing risk your essential guide to business insurance

4 3. Contracts Business contracts are another frequent source of litigation. Liabilities under contract far exceed common law such as negligence and if not considered carefully beforehand could jeopardise the ability of a business to survive, particularly if the contract contains hold harmless clauses. 4. Intellectual property In crowded marketplaces where many companies are producing similar products there is always the risk that you could face legal action from a competitor who feels that your products or services closely resemble theirs. In fact, legal disputes over intellectual property have become more frequent as internet transactions have increased, and there is certainly no sign this trend will reduce. Conversely, what effect would another company copying your product or service have on your business, and if you rely on patents, trademarks and logos, could you afford the legal help to protect them? 5. Premises, equipment and business disruption Although this is the most obvious category, with respect to fire, theft, etc, the level of your cover can be affected by legislation, so it pays to keep up to date. Furthermore, although your offices and machinery may be insured, what about if a disaster struck that prevented your business from operating? How long could your company survive? Disruption in the service you provide can prove catastrophic, particularly in the current business environment where the immediacy of the internet has raised expectations of 24-hour service, instant ordering and rapid delivery. Meanwhile, increased competition means a rival is almost certain to be ready to capitalise on any service gaps that might occur. Legal disputes over intellectual property have become more frequent as internet transactions have increased, and there is certainly no sign this trend will subside 6. Cyber threats and technology Over the past decade, the number of breaches to security and data through planned cyber attacks has increased. These attacks have become more sophisticated, more dangerous and more difficult to thwart. In fact, cybercrime has reached a point where it is considered to be one of the main dangers facing business today. This was confirmed in a survey conducted during February 2013 by Advisen. It monitored 41 risk managers across the globe. Some 85.7% said cyber-crime posed at least a moderate threat to their organisations, while 25.7% believed the threat to be extremely serious, significantly up 10% on So it s essential to have a cyber-risk strategy in place. Managing risk your essential guide to business insurance 3

5 The right cover for your business Now that you have a better appreciation of the main risks to businesses in the 21st century, it s important to consider carefully how they relate to your organisation and then identify the appropriate forms of cover from the list below that will ensure you have the right protection in place. We have divided the various types of business cover into four main areas: legal, financial, employees and property. LEGAL Professional indemnity insurance Sometimes mistakes will happen. Professional Indemnity Insurance protects your business in the event of a claim made by a client (or third party) suggesting they have suffered a loss as a result of non-performance or professional negligence in the services you provided. If your business centres round sharing or selling your knowledge and expertise to your clients, then you need to protect yourself from potential claims that your knowledge or advice has in some way damaged their business. They may also look to make a consequential claim which relates to your advice leading to unexpected costs to them that they may seek to recover from you. Management liability cover Running a business exposes company directors and their key personnel to risk. Risks can arise from a number of different scenarios, some examples include: From shareholders in respect of mismanagement of the business Breaches of The Companies Act From employees From competitors Breaches in health & safety From the Inland Revenue Directors and Officers insurance Directors & Officers (D&O) Liability protects the personal liability of directors, officers and senior management against claims arising from their decisions and actions taken whilst managing the business in the scope of their senior roles. Corporate Liability or Entity cover (for the firm itself) extends the cover under a D&O policy to include the company or organisation itself. Company Employment Practice Liability extends the D&O and Corporate Liability/Entity cover to include lawsuits and liability in respect of an alleged employment practice violation e.g. unfair dismissal, sexual harassment, failure to promote based on racism, emotional distress, etc. 4 Managing risk your essential guide to business insurance

6 Employers liability insurance If you hire employees, even on a part-time or temporary basis, you are legally obliged to have liability insurance cover of at least 5 million. It protects your business against any claim that may arise as a result of any of your staff injuring themselves on your premises or while working for you. No matter how stringent your health and safety strategy may be, something unforeseen can always happen, so it pays to ensure your business is adequately covered in this area. Remember that something as simple as someone tripping over a loose cable in an office could result in a serious injury claim. Public liability insurance If you invite customers onto your premises, then you need to seriously consider public liability insurance, even though it is not a legal requirement. It protects you against claims made by members of the public who have suffered injury or damage to property in connection with your business. If someone slips on a wet floor on your premises, for instance, you may be held responsible, and claims of this type can run into tens of thousands of pounds. Some customers or clients may require you to present proof of public liability insurance before they work with you. This is particularly common when dealing with public bodies and large corporates. If you hire employees, even on a part-time or temporary basis, you are legally obliged to have liability insurance cover of at least 5 million Product liability insurance This protects your business against compensation claims from anyone harmed or whose property is damaged due to a defect in one of your products. This could be through design, manufacture or supply, so it pays to cover all eventualities. Legal expenses insurance You may need to defend your company against legal action not covered by the liability insurance mentioned previously. This could be due to an employee suing you for unfair dismissal, for example, or claims of intellectual property infringement, contract disputes or data security breaches. In such cases you can take out a legal expenses policy to cover any costs incurred in defending yourself or for compensation you may have to pay. Environmental liability insurance If you run a manufacturing business that produces by-products that could harm the local environment should a problem occur in your business processes then you should seriously consider taking out environmental liability insurance. Cyber liability insurance Internet technology has changed so much in the past 20 years, that there can t be many businesses that have not been touched by developments in this area, from the use of to highly sophisticated websites used to purchase goods online. If your business is trading online a cyber-attack that brings your site down could result in costs in repairing the site and potential loss of profits. It is also important to protect customer data as this is now a tradable commodity. Online forums, chat rooms, blogs and even s c claims for an result in claims for libel and defamation. A cyber liability policy can be used to cover your own and also any third party losses. Managing risk your essential guide to business insurance 5

7 FINANCIAL Incidents such as storm, fire, flood or burglary cannot only damage your premises and equipment, but also disrupt your operations. Business interruption insurance Incidents such as storm, fire, flood or burglary cannot only damage your premises and equipment, but also disrupt your operations. The same goes for a businesscritical computer system crash. Any gap in your ability to serve customers or deal with staff and suppliers is likely to have major financial implications, and business interruption insurance helps you protect your business against such a scenario. Every business interruption claim lasts a different amount of time so we will work with you to identify a suitable period required for your trading conditions to return to normal. Money insurance Virtually every business will handle money in some way, whether it is the form of cash, cheques, credit card slips or bankers drafts, making this form of insurance extremely important. Different limits will apply to money left on the premises in and out of business hours, in safes, at the homes of directors or employees and in transit. Trade credit insurance You can protect your company from bad debt resulting from the insolvency or bankruptcy of your customers by taking out a trade credit insurance policy. This can be particularly important to small and medium-sized companies, which can be forced out of business if a major customer fails to settle their bill. While this type of insurance will not necessarily cover the full value of an outstanding debt, it will pay out a percentage. This usually ranges from 75% to 95% of the invoice amount, but may be higher or lower depending on the type of policy. Business travel insurance If your work involves frequent travelling, then it will be worth taking out company-wide travel insurance. This will prevent your business from losing money through flight cancellations and other possible expenses, including any medical treatment that might be required in a foreign country. Key man insurance You can use this kind of policy to protect your business against a key member of staff leaving or falling ill and the business being adversely affected by the resulting skills gap. This can be particularly important for small to medium-sized businesses, which have less potential to be able to provide adequate cover for the absence of influential people. 6 Managing risk your essential guide to business insurance

8 EMPLOYEES Employee protection insurance Rather than relating directly to the business, this kind of insurance provides cover against risks to individual employees. Anyone who is self-employed or runs their own business will be only too aware that any absence from work will have a direct effect on their income, and prolonged periods of absence will have a significant impact. Consequently, there is a range of options that provides compensation depending on the reason for a person s inability to work. These can be taken out by individuals or offered by employers to their staff as part of a job package. They range from personal accident and sickness insurance and income protection insurance, which help provide an income in the event of accident or sickness, to private medical insurance and life insurance. Other types of insurance to consider that may be relevant: Health, Life Insurance and Pension Needs Personal accident and sickness insurance Income protection insurance Private medical insurance Life insurance Pensions Stakeholder Pensions Anyone who is selfemployed or runs their own business will be only too aware that any absence from work will have a direct effect on their income, and prolonged periods of absence will have a significant impact. Managing risk your essential guide to business insurance 7

9 PROPERTY You will need to consider carefully the range of disasters that could hit your business and ensure you guard against both the common and the unexpected Buildings and contents insurance Your business premises and equipment can be insured against a range of eventualities. These include the effects of the more obvious dangers of theft, fire, storm and flood, as well as the more unusual risks such as explosion, riot, malicious damage, water damage from leaking tanks, pipes and sprinklers, and impact by aircraft, road and rail vehicles. You will need to consider carefully the range of disasters that could hit your business and ensure you guard against both the common and the unexpected. You can get specific buildings and contents insurance depending on the nature of your premises and property, such as glass insurance and frozen food cover. Theft-only insurance Although your contents insurance will cover you against theft, providing you can show there has been forced and/or violent entry to or exit from your premises, theft by your own employees is unlikely to be covered. For this reason, specific theft insurance should be seriously considered if you stock high-value or desirable materials or products. Engineering breakdown and inspection insurance This type of cover protects you against electrical or mechanical breakdown for most types of equipment and machinery, including computers. Under engineering failure insurance, many items of plant, such as boilers, lifts and lifting machinery, are required by law to be inspected regularly by a qualified person to ensure they are in sufficient working order to be covered by the policy. Motor vehicle insurance If your business runs a fleet of vehicles, you are legally bound to insure against injury to others and damage to their property arising from them when they are out on the road, just like you would for your own car. Although you can simply take out a policy for third party, fire and theft, comprehensive cover would be more appropriate as maintenance of the fleet is likely to be critical to your business. Goods in transit insurance This is essential cover for any business that transports stock, goods, tools or materials on a regular basis. Goods in transit insurance will ensure that your goods are covered against accidental damage or theft that could occur while they are in transit, providing you with complete peace of mind when your goods are on the move. 8 Managing risk your essential guide to business insurance

10 Managing your business insurance Once you have established the insurance protection your business needs, you should manage and review it on a regular basis. This keeps your policies up to date and relevant, while also ensuring any new aspects of the business are covered. The most effective and efficient way of doing this is to allocate the duty clearly to one or more members of staff and make sure they understand their responsibilities in this area and the importance of the role. If you don t take a strategic, organised approach to business insurance you are likely to be left under-insured, which could prove disastrous to your organisation. Changes such as new terms of business, overseas trading, expanding workforces, new technologies, new lines and revised methods of production are all factors that can increase risks to your business. Consequently, your insurance should change with your business and its marketplace. Buying business insurance comparison sites usually provide limited information on cover, while standard packages are frequently inappropriate for business A number of factors have changed the face of purchasing business insurance, with both benefits and drawbacks for companies. The rise of online purchasing has made it quicker and easier to buy, with some very tempting deals on offer. Meanwhile, the consolidation and convergence of the insurance sector means companies can purchase standard cover packages that are on offer through most major insurance companies. Furthermore, the rise of comparison sites makes it easier to compare prices before buying. However, as we have seen above, choosing the right business insurance has never been more complex, and it s more important than ever not to be under-insured. While many business owners are naturally drawn to the above options, as they are time poor, comparison sites usually provide limited information on cover, while standard packages are frequently inappropriate for business. The reality is that every company is different, so there is no one-size-fits-all approach to buying business insurance. A safer and more effective solution is to get expert, targeted and well-researched advice from an established chartered broker. This will not only keep you on top of your rapidly changing market, but also add real value by matching policy price with relevance and effectiveness. In fact, companies should consider using a broker in the same way as they would an accountant or a lawyer as professional support. Managing risk your essential guide to business insurance 9

11 About Macbeth Macbeth Insurance Brokers understand all about risk. Whilst we appreciate each of our commercial clients is unique within its own industry, we handle a full range of clients from the major PLC to the small owner-managed business and are able to adapt our service offering to fit the needs of the business exactly. Fundamental to this on-going success is the strength of our management team and availability, quality and professionalism of our people. Established in 1992, we provide reassurance to businesses with turnovers ranging from 1m to 75m. Quite simply, our purpose is to make our clients lives easier, which we do by providing an exceptional and very personal service. We take care of everything, allowing our clients to focus on what s important to them. Other publications and guides are available from Macbeth. To access and download our guides you can visit the resources section on our website. If you would like hard copies of any of our guides please us at info@macbeths.co.uk Macbeth Insurance Brokers 4 Commerce Park, Brunel Road, Theale Reading, Berkshire RG7 4AB T / Reading: T / London: E / info@macbeths.co.uk W / macbeths.co.uk