What Insurance Do I Need for My Business?

Insurance premiums can be daunting to any business owner; there can be multiple premium quotes (with different terms and conditions) for your risk, knowing exactly how your premiums are calculated is virtually impossible – and then you have to pay IPT (typically 12%) on top! However, the premiums shouldn’t typically be a massive proportion of your organisation's overall expenses. In fact, insurance claims themselves are often immaterial to most organisations, with the rest of the premium comprising the insurer’s expenses, commissions (to brokers) and profit.

The key thing you have to understand is what Insurance do I need for my business, based on your specific activities. Below, you’ll find a list of common types of business insurance so you can start thinking about the risks you might cover.

Do I Need Business Insurance At All?

Some forms of insurance are mandatory for some businesses. Beyond that, as a general rule, you should insure only those things you can’t afford to lose.

The size of your business, your business activity, the industry you operate in, and other factors will dictate the level and types of insurance you need. Choose the aspects of your business that are critical and insure them according to your real needs.

Public Liability Insurance

Does your organisation come into contact with members of the public? If so, you almost certainly need public liability (PL) insurance. PL covers compensation claims from your clients, suppliers, or other third parties for injuries sustained on your business premises (or damage to their property).

Businesses with regular customer contact are usually under licensing obligations to purchase PL insurance since they are customer-facing. However, even if your organisation has minimal contact with external customers, it’s a type of insurance that’s worth considering in case you damage a third party’s property.

PL insurance is different from Products Liability insurance, which covers claims resulting from defects on products made by your business. The two are often combined into Public and Products liability insurance (PPL), but adding such Products Liability cover is unnecessary if you do not manufacture products.

Employers’ Liability Insurance

Most businesses that employ staff are required by statute to purchase employers’ liability coverage. However, there are some exceptions. Most notably, public authorities do not need to purchase EL insurance. Nor do organisations with a single employee who is also the owner.

EL insurance covers employee claims as a result of injuries sustained in the regular course of their duties with your organisation. If your business places your employees at substantial risk of bodily harm, it’s prudent to consider a degree of EL coverage (‘Non-statutory’ EL policies), even if you are exempt from the normal ‘statutory’ policies. Such ‘Non-statutory’ EL policies can be tailored to your exact needs (ie much cheaper), without the onerous burdens of the normal statutory cover levels.

Professional Indemnity Insurance

Professional Indemnity (PI) insurance protects your business from claims stemming from providing in adequate services causing a client to suffer financial loss. Most types of businesses providing financial and/or legal advice require a minimum level of PI insurance.

In the main, PI insurance covers costs associated with client losses as a result of business or professional advice, but it also extends to legal costs associated with the defence of your business in the courts for such matters, even if you are innocent.

If your business is at risk of causing significant losses for clients through miscalculation, PI insurance can be a smart investment, even if it is not a condition of any professional licence you need to carry out your work.

Business Buildings Insurance

As its name implies, business buildings insurance covers claims related to your organisation’s buildings, if you have them. If you operate from rented premises, you should consult your landlord before purchasing; if the buildings are already insured, there’s no need to double up on the insurance.

If you work from a home office, you should still consider business insurance. In that case, you’d insure the portion of your home that you use as office space, as it may not be covered for business use under your personal Home Insurance policy.

Business Contents Insurance

Business contents insurance protects your organisation from the loss of your business tools and equipment. Depending on the policy, it may also cover fire damage, water damage, or other forms of equipment loss such as vermin and pests etc.

Some businesses operate with machinery and equipment worth many hundreds of thousands of pounds. Absorbing that kind of loss could be catastrophic, so contents insurance needs to be seriously considered.

Business Interruption Insurance (BI)

Critical but often neglected, business interruption insurance covers your organisation’s loss of revenue or profit resulting from a related Business Buildings or Business Contents insurance claim, ie a reduction in your revenue.

For instance, if a fire destroys some or all of your property, buildings insurance may cover the loss of the building itself (Business Buildings Insurance) and/or your equipment and stock (Business Contents Insurance), but won’t compensate you for the lost income from the (temporary or permanent) cessation of business activity. If your business operates with high-risk (or scarce) materials, BI insurance is probably a wise investment.

Moreover, if there are critical periods for your business, making sure activity in those periods is covered (‘seasonal increases in sums insured’) could be critical to your organisational permanence.

A Safer Way to Do Business

This abridged list of business insurance is a good starting point for any organisation. However, there are many more types of business insurance which you ought to consider. An industrial commodity manufacturer will have totally different insurance needs from a port authority, as an example.

Have a look at our website to learn about all the available types of business insurance offered by your providers and what they can do to help you. And when you’re ready to take a holistic look at your insurance needs, we’ll help you decide on the best approach.

Author’s Bio:

John is an actuary and owner and Director of HJC Actuarial, which he founded in 2003 and which has advised over 100 clients since it’s’ inception. He has worked in the insurance industry for 30 years, qualifying as an actuary in 1995 and becoming a Partner in a major global consulting firm in 2000. Since 2003 he has provided independent advice to his clients on optimal insurance program design, presentation of risks, and premium negotiation with insurers, insurer solvency assessments, policy wordings, insurer selection, and insurance broker selection.