Incisive Business Guide to Business Insurance Business Insurance Guide Summary This guide from Incisive Business outlines the features and benefits for your business from taking out business insurance. The document is for guidance and information only and does not constitute advice. Buying business insurance can be a daunting task and buying the appropriate insurance is an important part of protecting you, your employees and your business. This purpose of this guide is to provide an overview of the types of business insurance available and what to consider when looking for insurance cover for your business. You should always seek professional advice from an insurance broker or agent to protect you from the potential problems and pitfalls that can arise. They are legally obliged to help ensure you choose the best products for your needs and at the most cost effective price. All business will need some form of insurance. Policies can be bought independently or some insurance organisations will provide policies that incorporate the various key elements required to protect a business. These are known as All Risk policies - an agent, broker or Insurance Company will give you more details. You're business is legally required to have some types of insurance cover for example motor insurance or employer liability which is a compulsory insurance if you have staff. Also it s good business practice to insure business premises, your equipment and your stock against fire and theft. Additionally you might wish to insure key members of your team against injury, accident or ill-health. So what Insurance do I need to get for my business? It is important and cost effective to assess your particular businesses needs before you buy any policy. An independent insurance broker who is familiar with your business sector can help you select the right level of business cover for you by assessing the business risk and they will try to find the best deal. Below is a list of some of the business insurance policies available and a brief note on what they can cover. This list does not cover all types of business insurance available but simply provides a selection of the most common types. Employer Liability: If you employ one or more employees, it is a legal requirement to have Employers Liability. All employers are legally obliged to take out Employers Liability to insure against their legal liability in the event of disease, injury or death, sustained by any employee arising from their employment. Employer s Liability also covers anyone under a contract of employment, including trainees, apprentices and anyone who may be hired from a third party. (If the employee/s are a husband, wife or other close relative they may be exempt, but it is very important to check this first). The minimum legal requirement is 5 million and the certificate has to be exhibited in the workplace. Failure to show the Employer s Liability insurance certificate is a criminal offence. Page 1 of 7
Professional Indemnity: Professional Indemnity also known as PI or PII, is for individuals or businesses that provide professional services, advice or design work, such as accountants, lawyers or architects. If, as a result of the services provided, an error, injury or negligence occurs and a client or third party suffers any damage or loss, professional indemnity should be in place to cover the business against any financial claims for damages and legal costs. The level of professional Indemnity will depend on the type of service or consultancy provided. Some government departments will insist that the business or consultant has professional indemnity in place before they are allowed to work with them. Public Liability: Public Liability Insurance covers a business s legal liability to pay damages in the event of a member, or members, of the public being killed, injured or any damage to their property, resulting from any activities carried out by the business. Public Liability will also include cover for legal fees and any expenses that may be incurred. The minimum Public Liability policy cover is 1 million. However, the amount of Public Liability cover a business should consider will depend heavily on the type of business and the possibility of multiple injuries, deaths or widespread damage resulting from actions by that business. Product Liability: Product liability insurance should be taken out if a business sells or repairs products and the business can be held legally responsible for any injury or damage that may occur due to defects which may happen through design fault or manufacturing error. It is a criminal offence to provide unsafe good as stated in The Consumer Protection Act 1987 Key Person Insurance: Generally know as keyman insurance and often overlooked. If a business has an individual or individuals who play a key role in the organisation and their loss through death, injury or long term/critical illness, will have a major impact on the running of the business, a key-man insurance policy pays out a sum of money to the business that could be used to cover: the potential cost of hiring temporary staff recruitment costs incurred replacing a key member of the staff potential financial losses due to losing a key profit maker for the company the cost of securing shares owned by a deceased member to protect from dilution or control of ownership protection against those who may have been liable for Personal Guarantees Business Interruption: Business Interruption insurance is a policy that comes into play should a major event such as explosion, flood or fire, prevents a company from performing their normal day to day duties. Business Interruption will cover any gross profit shortfall additional cost incurred as a result of the disruption or covers In the event of a major problem with your workplace fire or flood for example, which mean you cannot access your workplace to carry out your duties, this may have a major impact on your business potential profits. This policy covers you for any gross profit shortfall based on a pre-determined sum and any additional costs incurred due to the disruption. Page 2 of 7
Directors and Officers Liability / Indemnity Insurance: Directors, officers and managers of a business are potentially at risk to unlimited personal liability based on the UK Companies Acts of 1985 and 1989. They can be held personally liable for their actions in certain circumstances and should they have inadvertently acted inappropriately or failed to carry out their duties and/or responsibilities, they may leave themselves open to legal action. Directors may also find themselves in this position through the acts of a fellow director or officer of the company. A directors and officers liability indemnity insurance policy would provide cover for potential compensation claims and legal costs. Trade Credit Insurance: Although a company can have good credit control officers or have Factoring or Invoice Discounting facilities to help with cash flow, sometimes one or more of their customers may get into financial difficulty and may find it impossible to pay for services or products provided. This has an obvious impact a business bottom line. Also should a company s suppliers go into liquidation or bankruptcy this too can have negative effect on the company s ability to provide a service and again have a detrimental impact on the company s bottom line. Trade Credit Insurance Cover can protect a company against bad debt or late payment risks and provide the business with working capital. Buildings or Premises Insurance: A business should protect their premises against potential risks such as fire, theft and perhaps even flooding. The level of buildings insurance cover required is likely to depend on whether the premises is owned by the company or leased. If the premises is a rented property, then depending on the agreement, your landlord s policy may provide cover but you should check. Buildings Insurance cover will look to cover the costs associated with repairing and replacing the building, including demolition and clearing, if necessary. If you work from home you should check to make sure that your home policy includes cover for your business. Contents Insurance: A contents insurance policy will cover the business for loss or theft of company property such as fixtures and fittings, office furniture, IT equipment, plant, machinery, stock etc. In general the contents insurance policy replaces on a new for old basis, however it is possible that business equipment can be insured on an indemnity policy which will take into account wear and tear on the equipment when a claim is made. Motor / Fleet Insurance: Any business that uses vehicles for business purposes are legally obliged to have a minimum of third Party, Fire and Theft Vehicle Insurance in place on all vehicles. If a business has more than five vehicles in its fleet, it is possible to negotiate a Fleet Insurance Policy. This may save the company money but the cost of the policy will be based on the amount of claims the Fleet has incurred. A rating factor will be attributed and this will contribute to assessing the premiums the Fleet Insurance company will charge. It is a legal requirement to insure a company s liability for injury and any damage to other parties and their property caused by a company vehicle. Third party, fire and theft is the basic Motor Insurance cover acceptable. However a Comprehensive Vehicle Insurance Policy will also cover any damage to the company s vehicles. Page 3 of 7
Goods-In-Transit Insurance: Goods In Transit Insurance is for companies that are involved in transporting products, goods valuables or cash. The Goods In Transit policy may be structured to insure an individual value limit for each vehicle or for the value of an individual consignment. The policy will cover for destruction or damage to the goods and includes accidental loss. It will also include the cost of alternative transport requirements if necessary. Product Recall: Product Recall Insurance should be considered in the event that a company finds that one of their products is faulty or it is suspected to be, then they may have to recall the product from the market. A product recall insurance policy would cover the cost of the recall including associated cost such as product warnings in the media or, if applicable, cost associated with repairs. Employment Practice Liability: If for some reason a company has to dismiss a member of your staff and they claim unfair dismissal or discrimination an employment practice liability policy will provide cover for potential costs incurred. Employee Business Travel: If employees travel abroad on behalf of the company, Business Travel Insurance could prove to be a valuable investment. In the event of any unforeseen issues from last minute cancellations, loss of property to medical bill, personal liability or legal costs, Business Travel Insurance would help your staff go about their business safe in the knowledge they will be able to sort out the majority of issues that may arise. The insurance policies above are some of the more relevant policies that you should consider for your business. There are other policies that may be relevant or useful to your business. A good insurance company, broker or agent will be able to inform you of relevant and beneficial policies for your business. Who should I speak to? There are many options to choose from there are: Independent Broker or Intermediary An insurance broker acts as an intermediary between your business and the insurance companies. They may have been recommended to you or you have found them online or even the phone book. Which ever route brings you to the broker make sure you choose one that is experienced in your particular sector. Brokers use their knowledge of the insurance market to find and arrange suitable business insurance policies. Insurance brokers tend to be independent and offer products from more than one insurer to ensure that their clients get a good deal. Page 4 of 7
Insurance Broker Websites These have there own questionnaires that generally will ask for detailed information. There may be as many as six or seven pages to be completed so you need to make sure you have some spare time and that you have all the relevant details required to complete these forms. However the Insurance Broker sites are able to give you more precise quotes to suite your requirement. Brokerage Firms These will be made up of a team of insurance brokers who may have various fields of experience and offer a wider range of products for both personal and business products. Brokerage firms can vary in size from a small team a few people to groups with several hundred brokers working under one umbrella. One of the benefits is that they are likely to have person situated close to your geographic location so you can have a local account manager and establish a good working relationship. Comparison sites or Aggregators With these websites you fill in some basic details about your business insurance requirements on their sites. They provide a list of possible quotes from various insurance companies. However you should be aware that the prices that they show initially are based on many assumptions about your business and consequently is an indication of premium and policy. You will be required to complete a more detailed application to receive an accurate offer. Lead Generation Websites There are companies such as Incisive Business that take relevant essential details about your insurance requirements and based on your responses we match your needs with our panel of advertisers and introduce you to insurance companies who will want to speak to you. We inform relevant insurance companies about the type of insurance you re looking for and arrange for them to call you within 48 hours to discuss how they can help. By talking to you they can gain a fuller understanding of your business insurance needs and then provide you with a relevant policy. Trade Associations If you are a member of a trade association they may be in a position to help you find a relevant insurance provider who understands your industry and therefore will already know what is suitable for your business and there may be special insurance rates for your association. Insurance Agent Similar to an insurance broker but an agent is usually restricted to working with one insurance provider. Although they will have a good understanding of your needs, they will be limited to the range of products provided by their particular insurance company. Both Brokers and Agents may charge a percentage of your premium for their service. They may also receive a payment from the insurance company for writing the policy. However it is your right to ask for details of how much they are earning from your account and how their commission is structured. They are legally obliged to tell you to show that there is no conflicting interest when they chose your particular provider. Page 5 of 7
Some things to consider when looking for business insurance Start by Identifying before hand what are your minimum legal insurance requirements. Review your business activity and assess the potential impact if certain things went wrong; for example loss of a key person, business interruption, bad debtors, stock loss etc. Look at ways you may be able to lessen the impact of these potential risks. Consider what procedures should be in place such as credit control; health and safety standards to protect workers; security systems to protect premises and equipment and disaster recovery procedures. Obtain valuations on property, equipment and data. Have prepared all the relevant information required to discuss your needs with the broker; make sure you have the necessary financial details to hand, payroll, turnover and profit data. When you re reasonably confident you have a good idea of the types of cover you will require make sure it s in a format that can be given your advisor as this will help speed up the process and enable more accurate quotes. Choose an advisor who has good experience in your business sector and if possible conveniently located near your place of business. Get the contact details of the people who will be working on your account. Ask for a breakdown of commissions, fees and any other benefits that your advisor or broker may be receiving as a result of your business. Ask for the advisor or brokers Professional Indemnity or Errors and Omissions Insurance policy. This is the protection they should have in order to protect you should they make a mistake with your policy that results in a loss to your business. Consult with your broker and explain your situation and whatever you believe is the type of insurances you require. A good broker will ask some probing question to ensure that everything possible has been covered and your business risks minimised. When answering the questions on an insurance application form it is imperative to act in good faith as a proven misrepresentation will invalidate any claim you make in the future. Obtain three or four quotes from different providers on a like for like policy including any excess payments, so that you can make an informed decision about the provider you want to use. When you have chosen your policies, document the renewal instruction and work with the broker to ensure that you receive all the relevant policy documents and that your policy starts on time. Confirm with your broker the claims reporting procedures and document these. Agree the procedures for monitoring claims if instigated, including timeline for regular status updates of the claims. Maintain a close relationship with your broker and keep them informed of any changes within your business that may affect your policies. Keep detailed records of any issues that resulted in a claim; this will help you to prevent any reoccurrence of the incident in the future. What if I don t understand the technical talk? Page 6 of 7
There can be a significant amount of technical terminology and jargon involved in business insurance, but the following websites have a list of terms and their explanations, which will help: www.lloyds.com/help/glossary.html http://www.biba.org.uk/jargonbuster.aspx Additionally this website provides further insurance information: http://www.abi.org.uk/ Page 7 of 7