When setting up your small business acquiring insurance is probably one of the last things on your to-do list. If disaster strikes, however, your insurance is what will ensure that your business will survive.
The issue of insurance brings up many questions for small business owners, not least of which is “is there a legal requirement for a business to have insurance?”. To help you navigate what can seem like endless options and opinions surrounding business insurance, our Solicitors have created this article to answer some of the most pressing questions on the subject.
Do SMEs have to have insurance?
The only type of insurance a business is legally required to have is employee liability insurance. As an employer, you are responsible for the health and safety of your employees whilst they are at work. Employees can be injured at work or they, or former employees can become unwell due to chemicals or substances they were exposed to during the time they were employed by you. In such situations, those affected may bring a compensation claim against you. Employee liability insurance is designed to cover such claims by meeting the cost of any compensation agreed or awarded by the Court.
You can only purchase employee liability insurance from an authorised insurer. You can check whether a company is authorised by searching the Financial Conduct Authority register on www.fsa.gov.uk.
All businesses must have employee liability cover of at least £5 million but the amount of cover you need will depend on the type of industry you operate in. For example, agriculture, construction, forestry, and manufacturing have the highest number of worker fatalities and deaths by industry. If your small business operates in one of these sectors you will need a higher level of employee liability insurance cover. Most insurers offer cover of £10 million.
There are many other types of insurance cover your small business may need, however, only employee liability insurance is compulsory.
One aspect of business insurance that is not often mentioned is the importance of reading the small print of your policy and the risks associated with failing to do so.
Always read the small print of your business insurance policies
Failing to have adequate insurance or your insurance not responding (otherwise known as paying out) can result in your small business failing unnecessarily.
Take the following common example. Jimmy owns a business that makes and sells party supplies. When he started his business five years ago he organised insurance to cover the stock stored in leased warehouse premises. The business grew considerably, and Jimmy took a lease on additional storage space at the same warehouse. He did not inform his insurer of the extra stock that was held in the additional leased warehouse space, something that under his policy he was required to do.
One night a fire consumed the warehouse and all Jimmy’s stock, valued at over £175,000, was destroyed. Jimmy claimed on his insurance, however, the insurance failed to respond because the insurer stated that Jimmy had breached the terms of his insurance policy by not informing the insurer that he had leased additional warehouse space and acquired more stock. Unable to fulfil orders or replace the lost stock, Jimmy was forced to file for bankruptcy protection.
If your business insurance is not responding, it is imperative that you contact an experienced Insurance Law Solicitor immediately.
Wrapping up
Business insurance is one of the most important things to consider when launching your SME. Although the only insurance you must have by law is employee liability insurance (if you have staff), there are many other types of insurance cover you will need to evaluate to ensure your interests are protected. Below are our top three tips for getting the right insurance cover and ensuring it pays out if disaster strikes or a legal claim is brought against you.
- When deciding what types of business insurance you require work with an independent professional advisor.
- Make sure you compare different types of policies to get the best cover for your budget.
- Always have your insurance policies checked by an experienced Insurance Law Solicitor who can advise you on your liabilities and coverage under the policy.
Finally, ensure you review your insurance cover regularly and update insurers on any changes, regardless of how insignificant they may seem. Insurance failing to respond is a common cause of small business failure, therefore, it is imperative to manage your policy portfolio with meticulous care and attention.
