As my first year of business in York neared its end I arrived at work one Monday to discover a ransacked office. Cables were ripped out of walls, paper covered the floor and my only computer was gone.
The landlord must have heard the loud cursing and swearing for he was soon easing his balding head around the half-hinged, half-broken door. Being a counsellor he encouraged further ranting so I could “let it all out”. I obliged; only for the exorcism to grow louder as it dawned on me that ‘recent’ files had not been backed-up.
Life in business hit a low point that day but fortunately my office insurance policy covered the theft. A cheque for £1,000 was soon in my hands. However, as you will read later, it was several months before the business was back on its feet again…
Since that burglary in 1990 I’ve bought most types of insurance and learnt much about the industry and how it works (or doesn’t) for small businesses. Whether or not you choose to buy policies to protect your business, there are issues to be aware of and pitfalls to avoid. Here’s some independent insight & advice to help you through the insurance maze.
1. What insurance policies should the start-up business consider?
Even if your business is just you at the outset, it’s advisable to have public liability insurance and employers’ liability insurance (see 3). You may also want your business to be covered for theft, fire and possibly flooding and if you shop around you’ll find policies that cover some or all of these issues within one package.
If your business requires you to drive, notify your insurers so your cover extends beyond personal use. Likewise, if you are travelling abroad, don’t assume an existing personal insurance policy covers you. On this latter point, annual travel insurance for business (excluding USA) is surprisingly inexpensive; even if you are only travelling twice in a year the annual package for business travel abroad may well work out to be best value.
If your business offers advice or if you work in a professional trade, you may also wish to consider professional indemnity insurance; although for many businesses this is not necessary especially at start-up. Finally, some trades (e.g. cafe, shop, hotel) attract specific insurance policies so check what insurance is available before buying a general policy.
2. Can you afford not to buy insurance?
One way to look at insurance is to consider what you ‘must have’ and what you would ‘like to have’. Your ‘must haves’ need to include insurance policies required by law (such as employers’ liability insurance if you employ anyone) as well as insurance that will protect you in the event of something happening that is so serious, the business folds. For example, public liability insurance provides compensation and legal fees in case of an accident caused by your business activities.
A ‘like to have’ might include Health or ‘Key Man‘ insurance cover. These policies provide cover in the event of illness or death. You have to judge the risk and decide whether you can operate your business without having the cover in place. For the record, as a UK citizen with access to free NHS services I’ve never been a big fan of private health insurance. I have used ‘Key Man’ insurance from time to time and recommend it particularly if other people are dependent on your performance at work and/or the income derived from it.
3. Working from home – does your home insurance cover you?
Increasingly people are setting up in business from home. If this is you, don’t assume the existing home insurance policy covers your business (in any way). Contact the insurance provider to check the home cover details and answer any questions as honestly as you can. You may find everything is covered but if you don’t, you have the option to increase the premium so your business is protected, or review the market to see whether a more suitable (and possibly cheaper) insurance policy is available.
4. Why use a local broker when cheaper alternatives exist on-line?
Whilst the cheaper policies may well reside on-line, I’ve used a local insurance broker ever since I started in business. Brokers provide independent professional advice to businesses and individuals, playing a key role in the identification, measurement and transfer of risk. I also much prefer working with someone I know rather than dealing with a faceless call centre; and critically, when I have made claims I’ve always felt the broker was on my side.
If you’re going to use an insurance broker find one that is a member of BIBA as this means they operate under a code of conduct ensuring customers are treated fairly and in your best interests. However, if price is your only buying criteria then enjoy shopping on-line.
5. Should insurance policies be automatically renewed?
For the most part, policies should be automatically renewed so your business has the necessary protection in place. But there are a couple of points to note here…
I always like the fact my broker contacts me in advance to check that the renewal is required since the thinking is done for me and I have the opportunity to check the suitability and competitive nature of their quote.
Policies such as annual travel insurance don’t have to be automatically renewed especially if you don’t have any plans to go away again. Wait for the next time you travel and make the most of the policy you purchase.
6. Why policy detail matters
No two insurance policies are the same and you typically only discover policy shortfalls when making a claim. Generally speaking, the cheaper the policy the less it covers.
When buying insurance, find out what it does and does not cover by reading the accompanying blurb and asking good questions of the agent. Consequence questions such as ‘If XYZ were to happen, would I then be covered..?’ can be very revealing and will help you to get best advice and avoid making basic assumptions at the point of purchase.
7. Do you want to work with public bodies?
If you plan to tender for work (or seek framework listing) with public sector organisations such as local authorities and central government expect to be asked for higher than normal levels of public liability and employers’ liability insurance. You may be required to have professional indemnity insurance cover too.
Unfortunately, this added insurance cost is no guarantee of any public sector work but you have to decide whether the risk is worth the reward. For me, such public sector policies discriminate unfairly against small businesses and hinders their growth. The ability of the public sector to source locally is also adversely affected.
8. Always know your policy excess
Insurance policies typically include an ‘excess’ statement’ – the amount you will pay in the event of making a claim. Excess amounts are commonplace particularly with car and home insurance and protect the insurance company from small claims. However, you also need to be satisfied that the excess amount is set at the right level for your business.
9. Why health and safety is such a key issue
In a world increasingly ruled by health and safety policies and fear of litigation, it is essential you know how your business impacts upon the public. It is wise to complete an office/site risk assessment (legal requirement if you employ 5 or more people) and ensure good practice is followed at all times. For example, if people trip over loose floor cables in your office or at an exhibition/off-site event, you may well be liable if harm is caused.
Public liability insurance might provide financial cover for such events but you don’t want to be put in a situation where negligence can be proved.
10. Always consider Business Interruption/Consequential Loss
The burglary in 1990 taught me some hard lessons, not least that it’s the consequence of a loss rather than the loss itself that can really hurt a business. Losing the data cost me months of work time and clients and so from that point forward I always chose ‘business interruption/consequential loss’ when buying office insurance cover.
Several years later the same York-based business had grown substantially and occupied several offices in the city centre. Unfortunately, the offices were also close to the Ouse river and the infamous wet autumn of 1999 caused chaos. For days we had over a foot of water in our car park and ground floor office space.
Thankfully, the insurance company and loss adjuster were on our case quickly and a sizeable sum was provided to cover asset damages. However, since we were also covered for consequential loss, the company claimed against all the issues arising as a result of the flood. The final payment was 10 times the size of the one for asset damage.
Key Learning Points: Assess the risks to your business and ensure you have the necessary cover in place to protect you should the worst happen. Be diligent with all insurance purchases and make sure you buy what is best for you and your business.
Please note, the advice offered in this article is only based on my personal experience and some of the advice may not apply in different countries. Always consult a professional before buying any insurance policy.