Business insurance may not always rank highly on a start-up’s checklist, but leaving it on the back burner is a dangerous game indeed
Building one’s own enterprise from scratch is a risky business, but that risk is generally mitigated by the anticipation of seeing your grand idea come to fruition. However, it may still come as a surprise that when an entrepreneur invests everything they have into simply getting their new business off the ground, he or she often overlooks the thing that could one day save them from a potentially crippling law suit. Indeed, even those who work in the vast insurance sector admit that business insurance is not top of the agenda for the majority of start-ups whose ultimate interest is ploughing money into the components required to engender a successful launch, and keep the numbers ticking over in the early stages.
“Insurance is not the most exciting part of setting up a new business,” concedes Deborah Reid, commercial director of business insurance price comparison supplier Simply Business. “When people are starting a business, they are thinking of lots of different things: how they can get customers, sell their products, whatever it may be, and insurance is just one of those things that features a bit too far down the list for a lot of new businesses.”
Given that employers’ liability insurance is the only type of cover a business owner is legally obliged to have from the offset, perhaps we could forgive our average Joe start-up for not looking beyond the essential when it comes to insurance. But the more clued-up entrepreneur will – or should – recognise that as much faith as they may have in their project, it is probably worth setting aside a little bit more capital to protect it in the event of an unforeseen or unfortunate occurrence. While the types of insurance required essentially depend to some extent on the specific nature of one’s business, there are two that appear to be of particular relevance and importance to the majority of SMEs.
“Most small businesses will buy public liability insurance,” explains Reid. “The risks that it will protect against will vary depending on the type of business you are, but in essence public liability insurance protects you in case someone sues you if they have been injured or had their property damaged because of your business.” Essentially then, it covers any business that comes into contact with third parties at any point in time. Granted, there are not many businesses for whom public liability insurance would not be a consideration, and it would seem a venture has more to lose than it has to gain by not taking out this type of cover.
“Let’s imagine somebody has been injured as a result of the work the business has done,” says Reid. “The risk it is taking is that it would be personally responsible or liable for the compensation that was due to that person. It is rare but we have seen instances where, even for very small businesses, the injured party makes claims that go into the millions, so the potential financial consequences of not having insurance can be quite severe.”
The same applies to our service-providing start-ups, with professional indemnity insurance identified as a “very strong should-have” by Chris Lennon, head of the Bristol office for the privately owned global brokering firm Lockton Companies. Lennon explains that, while not a legal requirement, SMEs will often be contractually obliged to have the necessary level of both professional indemnity or public liability cover in place, with the former protecting against claims of negligence with regards to advice given or services rendered. “Wherever you have an SME that is dealing with a larger organisation or a government body, or indeed a local authority, their own insurances require every sub-contractor that works for them to carry the same level of cover,” he says.
Beyond the two ‘biggies’, however, there is a plethora of other investment-worthy insurances available to SMEs, subject to what assets an enterprise has at its disposal, and how risk- averse a personality is at the company’s helm.
Buildings and contents insurance sit atop a list that could also include directors and officers liability insurance, key man insurance, business interruption cover and more besides.
It is all starting to stack up, you may think, but the value of an insurance policy doesn’t simply lie in the protection it offers.
Fundamentally, it also provides access to a welcome pool of support, suggests Deepak Soni, head of Direct Commercial at Hiscox UK. “If you think of a business that starts up, they are not going to have infinite resources, from a financial perspective, but they are also going to have finite resources in terms of people they can turn to. Having the appropriate insurance effectively gives them access to a team of experts – because that is what they are really buying when they buy an insurance policy – to help guide them through that process [a claim] and take away some of that pain.”
This is by no means to suggest an SME shouldn’t sneer at the additional cost that business insurance imposes on the business, but there are facilities available to ensure they are not left feeling too hard done by when shopping around for a quote. Whether it’s taking on the expertise of an insurance broker, trawling a price comparison website, or directly approaching a trusted insurer, an SME can generally rest assured that their own interests are catered for.
“I think there are businesses out there today that feel they need a broker’s expertise to place their insurance, as they may have some form of complex needs or the products they need to purchase are not catered for by their direct market,” reflects Soni. “However, equally, I know many small businesses who feel there is readily available information online, they have an accountant who has also perhaps given them a steer of the type of covers they need to consider, and, therefore, they are able to go online and make a bit more of an informed purchase directly with an insurer.”
And, while a comparison website is regarded by some as a sanctuary for the price-conscious business owner, the attraction of portals such as Simply Business appears to lie in the range and breadth of service they offer the entrepreneur. “We have a bit of a halfway house in that we have a contact centre as well, so, for those customers who come to Simply Business who aren’t comfortable about making these decisions online, we are able to offer them a more supportive service,” explains Reid. “I like to think that is the best of both worlds but, in essence, customers have choice and whatever avenue they go down that’s great; they can find the one that works for them and is best for them.”
Essentially then, there is always somebody on hand to advise an SME on their insurance needs, whether that counsel extends to merely identifying the type of insurance they require, explaining why it pays to insure at a level of cover greater than the value of an enterprise or product, or negotiating the right deal at the right price. Indeed, if we are to interpret business as a game of risk and reward, a solid set of insurance policies can go some way to making it a safer game in which to partake or, more pertinently, ensure that a grave misjudgement doesn’t result in a catastrophic or fatal defeat.