Business owners need to expect the unexpected. From burglary to weather damage, through to a slip, trip or fall on your premises could result in a claim – and possibly legal fees on top of that. Running a firm is challenging enough, so any unforeseen issues and expenditures could easily transform profit into loss or, in a worst-case scenario, closure.
As a result, almost every business needs insurance. Having adequate cover in place allows you to continue running your business with minimal disruption and keep any unexpected costs to a minimum. Of course, insurance is a means of support and should meet your specific requirements, so don’t simply sign off by rote when the renewals come in.
Depending on your industry, you will need different insurance types to protect you, your business, any business-related assets and your employees. Some of this is mandatory, while other insurances are discretional. Your solicitor will be able to help determine the levels of protection required from a legal and pragmatic point of view.
Taking this into consideration, exactly what insurance does a business need?
- Buildings insurance
If you are a tenant, your landlord will have buildings insurance; however, the landlord can pass the costs on to you if they are included in the terms of the commercial lease agreement. You are entitled to check the insurance is sufficient for your requirements and should annually ask the landlord to show the extent of cover. Of course, if you own the property, it will be your policy.
Furthermore, individual building owners have a duty under the Tenement (Scotland) Act 2004 to ensure they are sufficiently covered if a building requires reinstating following major events leading to demolition (such as fire, subsidence or landslip).
The Act also introduced a new override rule, so even if Title Deeds do not specify insurance is necessary, the law stipulates there must be insurance protection against the risk of fire; lightning strike; storm; flood; theft; landslip; subsidence; vandalism; leaking water tanks, pipes and domestic appliances.
2. Contents insurance
Should your premises suffer from an accident, burglary or damage from a fire or flood, you’ll need business contents insurance. This typically covers items kept on the premises – not assets held elsewhere. It will pay for the repair or replacement of lost or damaged items, such as office furniture or equipment.
If there is any damage to the premises, it can also pay to replace fixtures and fittings, such as the carpet, light fittings or flooring – essentially anything that is ‘attached’ to the building. Contents insurance also covers essential equipment and furniture, including computers, printers, desks and chairs. Should your employees’ personal belongings get lost, damaged or stolen, these are usually covered as well – as are any items on the premises that you have hired or borrowed. You can also add tool cover to protect you from the cost of replacing any stolen or damaged equipment.
3. Employers’ liability
You must get employers’ liability insurance as soon as you become an employer and staff use your building. Your policy must cover you for at least £5 million and come from an authorised insurer. This insurance will help you pay compensation if an employee is injured or becomes ill because of the work they do for you.
The policy should cover claims brought by all permanent members of staff, as well as contract, casual and seasonal employees, plus labour-only subcontractors. It should also cover any claims from temporary workers (such as students or people on work placements), volunteers and advisers.
Employers’ liability insurance usually covers the cost of compensation and any associated legal fees – however, policies can vary, so check with your insurer to see exactly what yours covers.
4. Public liability insurance
In addition to the fabric of the building, there are other related elements of risk. Public liability insurance covers the cost of claims made by members of the public for incidents that occur in connection with your business activities. It can protect you from compensation costs and legal fees if a client claims against your business regarding personal injury or damage to their property.
Policies vary depending on the insurer, but most usually cover you for incidents that occur on your business premises, as well as incidents offsite, such as at an event organised by your company. Some public liability insurance policies can also cover medical expenses, so if a third party is injured because of your business, you could be covered for the cost of their treatment.
As public liability insurance is subject to individual terms, conditions and exclusions, ensure all documentation is checked during the quote process, so you and your business are adequately covered.
5. Professional indemnity insurance
Whatever service your business offers, be it selling goods, providing advice, designing websites or building houses – you have obligations to customers. If someone buys your pizza and gets food poisoning, or gets electrocuted by one of your hairdryers, or you sign off a company’s accounts before they are completed, they will claim compensation from you. Such claims can range from a couple of hundred to millions of pounds.
Professional indemnity insurance can help protect your business against such claims (whether accurate or not), as it covers any legal fees for your defence, plus compensation, expenses and other costs you may be liable for. It can cover against actions and accusations such as negligence (i.e. if you make mistakes, give bad advice or fail to act upon something), intellectual property infringement (i.e. copyright infringement) and unintentional defamation (i.e. making a statement considered damaging to a client’s reputation).
6. Business interruption insurance
As the name suggests, business interruption insurance covers policyholders for loss of income when an unexpected event causes work to come to a grinding halt. This can include fire, theft or water damage, as well as any incidents that prevent a business from trading. For instance, cybercrime or interruption is now a big risk; so, if your website unexpectedly goes down, the internet crashes or a web hosting supplier goes out of business, you could lose valuable data – and clients. This insurance will also cover, for example, if a natural disaster occurs such as a flood and you can no longer work from your current premises.
If these circumstances arise, it is important to begin an insurance claim as soon as possible; after all, the faster the case is resolved, the quicker business can resume. Getting back up and running swiftly will, of course, minimise any losses suffered during the period of interruption.
7. Key Man insurance
Consider if your business is dependent on one person or a specific management team; what happens if one of them dies or becomes seriously ill? If one of your senior members of staff or decision-makers is suddenly unable to work, there can be significant financial and practical consequences.
Key man (or key person) insurance protects your business when key personnel suffer from long-term absence – or die unexpectedly. This type of cover, as well as permanent health insurance, is crucial if certain staff members have specialist knowledge or skills essential to running the business. It typically covers any lost revenue, plus sourcing and training a replacement.
It’s also important to have a commercial power of attorney in place.
8. Directors’ and officers’ liability insurance
Directors’ and officers’ liability insurance (also known as D&O insurance) covers the cost of compensation claims made against your business’s directors and key managers (officers) for alleged wrongful acts. Examples of these acts include breach of trust, breach of duty, neglect and wrongful trading.
If your company has directors or key managers, directors’ and officers’ liability insurance can cover the cost of any compensation claims made against them by shareholders, investors, employees, regulators or third parties.
Furthermore, should a director or officer of your company be found to have acted outside of the terms of reference set out in their job description, civil, criminal or regulatory proceedings can be brought against them. Directors’ and officers’ liability insurance covers the cost of defending these proceedings – as well as any compensation costs that arise from an unsuccessful defence.
9. Cyber insurance
Cyber insurance is a fairly new product, covering the losses relating to damage to, or loss of information from, IT systems and networks. This includes direct (or first party) financial loss to you or your business arising from a cyber event, including theft of funds, theft of data and or damage to digital assets. It also covers the liability actions that might be brought against you, arising out of a cyber event (third party loss), such as investigation and defence costs, civil damages, and compensation payments to affected parties.
Offering more comprehensive cover than the cyber element of business interruption insurance, cyber insurance policies include pre- and post-incident support, as well as covering your business for any costs arising from dealing with a security breach. It will also cover your business against claims of infringement of privacy and associated legal costs in the event of a breach. This form of cover is especially relevant for businesses that handle or store any personal information from their customers.
10. Vehicle insurance
Finally, if you, your employees or anyone else working for your business uses a car or van for work, you should make sure that all vehicles owned by your business are covered by insurance. A business with multiple (i.e. two or more) vehicles could consider a fleet insurance policy to cover them all, eliminating the need for multiple policies and renewal dates. Any employees’ vehicles used for business should also have their insurance extended – covering use for their employer’s business.
Plus, any personal vehicle insurance you have needs to include business use. Business use covers you and your staff to drive a car socially and for business purposes, such as travelling to more than one location or between business meetings. A named driver can also have business use.
Although this list is by no means definitive, it should provide enough of an overview to get you thinking about your own business needs. After all, no matter how carefully you manage every aspect of your company, you can still fall victim to an unplanned event or unforeseen accident at any time. Having the right insurances in place for your business can help limit any financial or reputational damage, and help you get back on your operational feet as quickly as possible.
John Roberts is a Partner and Director at Austin Lafferty Solicitors. John has been with the firm for almost 20 years, with experience in all areas of business law.
