Business insurance basics

Why does a business need to buy insurance?

There are a variety of reasons but the most common ones are:

• It’s a compulsory legal requirement for businesses to insure some types of business risk. For example, an employer’s liability to their employees to ensure that those employees are compensated if they sustain an injury or illness in the course of their work.

• Business insurance is a compulsory requirement of trade bodies or other certifying authorities to maintain licences or certifications.

• Clients often insist on working only with insured businesses as it provides them with a measure of protection if mistakes are made, accidents happen, or damage is sustained when they buy goods or services.

• As a risk management tool which enables businesses to continue to trade if they suffer an unforeseen event like loss or damage to stock or assets, injury or illness of employees or clients or damage to their property, and ensuing loss of revenue.

Why are business insurance premiums increasing?

Most insurers, and importantly reinsurers, are global, which means they are affected by global events. 2020 was a perfect storm for businesses and insurers. Covid, wildfires and hurricanes mean insurers will pay out billions more in claims this year than they would have forecast when they wrote their business plans. They’re also affected by geopolitical events like the ongoing uncertainty surrounding the end of the Brexit transition period. The result – increased premiums for all policyholders as insurers seek to maintain profit margins.

Business owners are finding that their business insurance renewal quotes are more expensive and often have reduced coverage in comparison to their expiring terms. Many business owners immediately seek cheaper alternatives, but is changing insurer the best option?

The cheapest business insurance quote isn’t always the best value

When looking at insurance quotes you should compare:

• What cover is being provided
• The suitability of that cover for your business
• Terms like deductibles, excesses, and limits
• Exclusions and your obligations as a policyholder
• The financial stability of the insurer
• Ultimately, will the policy pay out if there is a claim and what will the level of service be?

This is the cost versus value judgement. There is no point paying insurance premiums, even if they are lower than last year, if the insurance doesn’t fit your business’ needs or you can’t comply with the terms and meet your obligations as set out in the policy. It will cost you less but where is the value if it doesn’t deliver when you need it?

Buying your business insurance

There are a few basic steps for achieving the best value insurance for your business.

Suitability

Do you know what insurance your business needs? Do you know what cover you are buying at the moment? Do you understand the limitations and exclusions of your insurance policy? Do you know what your obligations under the policy are…… have you even read it?

Buying the right type of insurance is the starting point. Insurance is ultimately a risk transfer mechanism meaning that for a price (your premium) you are transferring certain types of risk that your business faces to an insurer. What is being insured varies from business to business but what is roughly the same for every business is that you are looking to reduce the financial risk to your business from:

• Loss or damage to assets (tools, equipment, stock property, licences etc)
• Injury or illness of employees
• Loss or damage to third parties and their property (customers and the general public)
• Liability your business has for the products and services you deliver
• Loss of revenue, either ensuing as a result of any of the above, or refusal of a customer to pay because they are dissatisfied with the work your business has performed.

Determining the risks that your business is particularly exposed to and which of them can and should be insured is vital for maintaining the integrity of your business. No matter how safely you operate your business, accidents do happen and if 2020 has done anything, it has highlighted that the unforeseen does occur!

Representation

Most of us don’t do our own plumbing, electrics or accounts, we get a professional as they have the qualifications, expertise and experience to do the job correctly and cost effectively.

If you don’t use an insurance broker, then you should engage one. A qualified and experienced broker can help you determine your business’s insurable risks, the suitability of your existing insurance arrangements and look for alternatives when appropriate. In many cases they will save you money and if you do have a claim having a broker onside can be immeasurably helpful in getting that claim dealt with efficiently.

In the current market, where insurance premiums are increasing and scope of cover reducing, an insurance broker is better placed to help you find value for money insurance. A common myth is that it is cheaper to buy insurance online. For so many businesses this just is not the case:

• Insurance brokers have access to specialist markets that are not available online
• They are able to have a dialogue with insurers and negotiate on your behalf
• They can present the risk management measures and the health and safety policies you put in place to protect your business in a meaningful way, which will have a positive impact on your premiums.

While they are doing all of this, you can get on with doing what you do best, running your business.

Risk management

Have you communicated your risk management efforts to your insurer?  

Insurance is just one part of your risk management strategy for your business. The risks your business face and how you go about minimising them vary from business to business. It could be bringing in a third-party health and safety consultant, additional staff training, enhanced security, or revisions to your terms and conditions. Whatever they are, tell your broker.

Covid has meant that a lot of businesses have had to review their working practices to be Covid secure. Introduction of enhanced risk assessments or working entirely online whereas before they had an office, studio or shop. Whatever the changes, tell your broker.

Negotiation

Insurance rates are on the increase so it’s likely that your insurance renewal terms this year have increased in comparison to last year. You may also find that your insurers have reduced the coverage afforded by your policy and/or introduced new terms and conditions.

If you have an insurance broker they should have automatically reviewed the changes and looked at what other options are available for your business. They should be asking you what changes have occurred to the business and what the plans for the business over the next 12 months, be that growth or reduction in sales/turnover or a change of direction and any risk management measures you have introduced.

If you’ve had claims, highlighting any new preventative measures to avoid future claims is vital.

A final word of caution

Remember cost versus value. Tempting as it is to go for a cheaper alternative that provides less cover, has higher excesses or perhaps places additional obligations on your business that you aren’t used to, there is no value to that saving if, when you need your insurance policy to respond, the coverage isn’t there.

For example, if you shave off that overnight tools cover because you think you will remember to take them out every night, the night you don’t is when the van will be broken into. If the worst happens you want to be sure your insurance puts you in a financial position to pick up where you left off and not several steps behind.

Insuring your business is a process and a vital part of safeguarding the integrity of your business, employees and assets. 

Contact www.fcinsurancebrokers.co.uk/get-a-quote for professional advice and get your business insured.

Photo by Andrés Canchón on Unsplash