Business insurance basics

Some types of insurance are legally required if your business meets the criteria. These include:

• Employers’ liability insurance - If your business employs staff, you are legally required to have at least £5 million employer liability cover from an authorised insurer. This covers your business against any costs and compensation you have to pay if an employee has an accident or is injured through work. You can face hefty fines if you employ staff and are uninsured and have staff.

• Motor insurance - If your business uses any vehicles on the road or in a public place you are legally required to have the correct motor insurance for all vehicles.

Whilst not a legal requirement, you may need:

• Professional indemnity insurance - if you are a professional, such as a lawyer, architect, financial planner, or accountant, your professional body or regulator may require you to have professional indemnity insurance. This protects you if you make a mistake or are negligent, or a client claims financial loss because of your work. It can cover against expensive legal disputes, including legal and compensation costs.

There are many other types of business insurance policies which may be relevant to your business, and whilst not legally required, may be required by your stakeholders eg lenders or clients, and are strongly recommended to protect your business. The policies that you need will vary depending on the specific risks your business faces.

These include (but are not limited to):

• Public liability insurance - covers compensation claims and associated legal fees from customers or members of the public if they are injured or their property is damaged due to your business activities.

• Product liability insurance - covers compensation claims brought by your customers or any other third parties if they have been injured by or suffered damage because of the products you make or supply.

• Property insurance - protects your business premises against damages caused by a range of dangers, including fire, flood, weather, theft and even accidental damage.

• Contents and equipment insurance - protects the equipment and contents that your business relies on (for example machinery, computer equipment, stock) against damage caused by a range of dangers, such as fire, flood, theft and vandalism.

• Business interruption insurance - covers loss of income at times where your business is unable to operate due to damage caused by specific circumstances as laid out in your insurance policy.

• Directors’ and officers’ liability insurance - protects you as a business owner against any claims against you personally, for example health and safety breaches and errors in the reporting of finances.

• Cyber insurance - covers losses and claims of compensation caused by online risks, including data breaches, cyber hacks and fraud and also loss of information from IT systems and networks.

There are various elements that affect the level of cover you need and the exclusions that are appropriate for your business.

• Assess the risks that your business might face. Think about what could go wrong that would cause your business to lose income (such as fire damage to stock) or would cause injury, damages, or financial loss in others (such as a slip or fall in your premises).

• Check your legal obligations and determine if there is any cover that you are mandated to have, including employers’ liability insurance, motor insurance and professional indemnity insurance.

• Find providers and compare policies. Look at what is covered in the policy and to what limit and check any exclusions. Look at costs and see whether a provider allows you to group the different types of insurance you need into one policy. Ensure that any insurance provider you take cover with has a good reputation and is authorised by the Financial Conduct Authority.

• Review your insurance cover regularly. As your business grows and adapts, your insurance needs can change. You may need new types of policy (e.g. motor insurance if you start using vehicles) or you may need to check and update details within your policy (for example if your turnover grows you must inform your insurer as your liability limits could change).

To get more information on the types of policies your business may need visit the Association of British Insurers (ABI) website. You can also have a look on some large business insurance providers’ websites and even start a quote to see what insurance they recommend you have.

If you need more help or advice, seek specialist help from a qualified insurance broker. You can check they are on the Financial Conduct Authority’s Financial Services Register which has a list of authorised and regulated brokers in the UK. The British Insurance Brokers Association (BIBA) has a list of brokers which is searchable by the type of insurance you are looking for.