A Guide to Business Insurance
Table of Content
The purpose of this Article is to provide a summary of business insurance covers that you will or may
need. This is an overview only, for more specific or detailed information then please contact Coleman
Insurance Brokers on 01202 647400.
This provides the structure of an insurance policy you would need to fully protect your business and
details of the recommended and normal insurance covers. There may be more specific or specialist
covers you require depending your trade.
Policy Warranties and Conditions
It is important that you read these carefully to ensure that you comply with these. Failure to comply
with these can affect your ability to successfully make a claim, or receive full settlement.
In particular, the Alarm and Security Warranties should be fully understood as, if they are not
adhered to, a theft loss may not be covered.
It is always recommended that you keep the insurance policy away from your business premises,
or at least have copies of the Schedule, contacts and relevant information elsewhere as, if the
premises are destroyed or you are unable to gain access, you may not have the information you
need to deal with the situation.
Coleman can provide a Business Continuity and Risk Management service to help you avoid suffering
losses or minimising the risk if they do happen. General advice can also be provided on Health &
Safety matters however, it is your responsibility to ensure that you are up to date with the regulatory
and statutory requirements applicable to your business. Further information can be found at
www.hse.gov.uk.
It is, however, important to have adequate insurance cover if your business is to survive a significant
loss. This should be regularly updated as your business grows or changes. Statistics show that even
with insurance cover, many businesses which suffer a major loss still fail, so having a good written and
regularly updated Business Continuity plan is vital.
1. Material Damage
This will provide cover for your property -
- Buildings (if you are the freeholder)
- Stock
- General Contents
a) Buildings
The Buildings insurance value will be different to its market (or sale) value. It is an insurance
rebuilding or Reinstatement cost which needs to include site clearance, architects and
surveyors fees and Local Authority costs (particularly if in a town centre location with a building
that has been adapted or changed over the years). If the building is listed this needs to be
taken into account.
b) Stock
This includes cover for all your consumables. The sum insured needs to include customers'
goods that you have on the premises, e.g. in for repair, and goods sold but not yet delivered.
Stock tends to have seasonal fluctuations. Most shop type policies have a free seasonal
increase. Make sure it is for the period and the amount you require. If there is no seasonal
increase then you would need to insure for the maximum value at risk at any one time.
For manufacturers where the Stock values may fluctuate more erratically over the year some
policies offer cover on a declaration basis, either monthly or quarterly, so that you do not pay
more than you need to by setting a maximum value at risk at any one time in the year.
c) General Contents
This will cover the majority of property not covered by the Buildings or the Stock. Again, these
need to be covered for their Reinstatement and not their written-down values.
If you do not own the Buildings then this cover must also include the shop front (if yours or
your responsibility), any decorations or improvements you have put in or anything you are
responsible for. It could be suspended ceilings, lighting fixtures, fittings, alarm systems, aerials
or even mezzanine floors. This cover should also include all your furniture and equipment, for
example - computers, printers and photocopiers, machinery and tools.
For items such as laptops or tools that need to be covered away from your business premises
an extension can be included to cover your property either throughout the UK, Europe or
Worldwide.
2. Terrorism Insurance
All UK insurers no longer provide this as part of standard cover. The risk of Terrorism inspired
damage is still very real however, and cover is available as an optional 'All Risks' insurance.
In most cases this is arranged with Pool Reinsurance (jointly funded by UK insurers and the
Government) via the main insurers. For larger risks there are now alternative insurers.
At the present time the cost for this cover is not prohibitive, although it is considerably more
expensive in the centre of most major cities, and in particular in central London.
3. Business Interruption
This covers your loss of profits and additional or increased costs of working following an insured
loss under the Material Damage.
An interruption in the business as a result of such a loss can be far reaching and is often much
more difficult to assess than the loss of property.
The Building could be in a town centre with difficult access; it could also be listed or in a
conservation area; the material may need to be specially ordered or specialist craftsmen
employed, all of which could delay its rebuilding.
If you are operating from premises where you have been for many years, any delay in
rebuilding would have an adverse affect on your trade. Even if you can find temporary alternative
premises, it may not be convenient for all of your customers, some of whom may go elsewhere.
Sometimes it can be the loss of stock or general contents which is the problem, such as trying to
get suitable replacement stock at the peak time for the trade, when this may not be readily
available.
Finding replacement fixtures, fittings or equipment can sometimes be held up, especially where
specialist or bespoke machinery is needed.
Once everything has been reinstated or replaced and the business begins trading normally again,
this may not be the end of the story, as you may have to win back your customer base -
particularly if you have been closed or interrupted for some time. For this reason you need to
make sure that the indemnity period of the policy is adequate. Quite often now 12 months, which
is often the period, is not long enough, particularly for an established risk.
The sum insured for this cover is your Gross Profit for the indemnity period. When assessing this
figure you need to make sure that it is your projected Gross Profit for the next twelve to twenty-four
months.
Gross Profit is, in its simplest form, the Sales less Purchases, which needs to include full wages as
you cannot just lay people off now and you would want to keep your workforce intact for when you
reopen.
There are certain charges that you would still have to pay, even if you are closed, although there
are some which may reduce (e.g. electricity costs).
If you rent out all or part of the insured premises, any loss of rent receivable should be included.
In addition, the insurance will cover reasonable additional costs to keep you trading, e.g. renting
alternative premises, advertising the temporary location, or buying alternative equipment or stock.
Normally insurers will pay up to £1 to save a £1.
There may be losses that you suffer even if your business is open and functioning normally where
you have not suffered an insurance loss at your premises. Some of these will or can be covered,
if they are fortuitous events. For example:
a) There may be a fire in the vicinity preventing access to your premises
b) There may be access to your premises but there may have been a loss at a major attraction close by, e.g. a superstore or entertainment complex, resulting in these premises being closed and a significant reduction in the footfall in the area.
c) A fire at an electricity substation cutting off all power to your premises
d) You may be dependent on one particular supplier (particularly if you are a solus dealer) which could have an impact if they had, say, a fire at their main warehouse or factory resulting in a serious delay in getting goods to you.
e) If you have a specific customer who buys significant amounts from you and they suffered, say, a fire loss and were closed for some time, your profits could be affected.
The key to all these examples is that the event has to be fortuitous and a result of an insurable
loss, such as fire, storm, theft, flood or accidental damage. It will not cover interruptions such as
the Council digging up the road outside or laying new pavements.
Some of these examples will be covered automatically and some will be available as an option.
If you own the property, or other property, and you let out all or part of the buildings, then you will
need to consider cover for the loss of rent receivable if your property becomes uninhabitable due
to an insured loss.
4. Public and Products Liability
There is a difference between these two covers.
Public Liability is cover for your legal liability for injury to third parties or damage to third party's or
employees' property as a result of negligence in owning and operating the business. It could be
people that are in or on your premises or it could be whilst you or your employees are out on site
or in customers' premises. For example a visitor to your premises may trip on a loose carpet tile,
or plumbing to a new bathroom suite you install may leak causing damage to a customers'
laminate flooring.
Products Liability is your legal liability for injury or damage caused by the products that you sell,
service or repair. Even if the fault lies with the product itself, you are primarily responsible as the
customer has contracted with you. Insurers will pursue where possible to where the fault lies but it
could be that the manufacturers or suppliers are no longer in business.
We live in a much more litigious society and the duty of care is very important if you are to avoid
regular claims.
The Limits of Indemnity with Public/Products Liability are usually £1,000,000, £2,000,000 or
£5,000,000. £1,000,000 is rare now, £2,000,000 is often the standard for insurance packages but
more and more now provide £5,000,000.
You may be asked for higher Limits if you have contracts for some Local Authorities or large
national companies. In most cases this would involve obtaining separate Excess of Loss
insurance cover, which can add significantly to the overall premium.
If using sub-contractors, you are responsible for them in the eyes of the customer and the law,
unless the customer has appointed them direct. The buck stops with you. It is important that you
check that any sub-contractors have adequate Liability cover and ask to see confirmation at the
outset and every year thereafter that they are working for you.
The Limits of Indemnity must be at least the same as yours, otherwise your insurers are exposed
to any loss in excess of their lower limit.
As with any insurance, it is your responsibility to advise the insurers of any material facts. These
are facts which have a bearing on the risk the insurers are covering, i.e. facts which could
influence them in whether to accept the risk and, if so, on what terms.
The work which you do away from the premises (other than collection and/or delivery), such as
installations and repairs is material.
If you are involved with an activity outside of the norm, such as aerial erection, height or depth
work, commercial work (particularly in industrial premises or at airports), installations or work on
boats or motor vehicles, or work outside of the UK, then you must tell the insurers. Some of these
may be specifically excluded unless agreed by the insurers.
This will also apply to the products that you sell, service or repair. Anything outside the normal
expected in your trade should be declared. Examples would be goods for the aviation market, the
medical industry or anything which is particularly hazardous to people or the environment.
5. Employers Liability
This provides cover for your legal liability for injury or illness of employees. Employees include
labour only sub-contractors (i.e. where they are self-employed but where you direct the work and
how it is done).
Apart from Motor insurance, if you have employees this is the only compulsory insurance a
business needs - except for some specialist covers specific to particular trades.
For this cover there has to be a minimum Limit of Indemnity of £5,000,000 but, in reality, most
insurers provide £10,000,000. Higher limits are available at additional cost, where businesses
require this.
6. Specialist Liability Insurances
There are some specialist liability covers that you may be asked for or which you may want to
consider:
a) Inspection covers
If you have any plant or equipment, such as fork lift trucks or lifts, there are compulsory
inspection covers you must have.
b) Professional Indemnity
This covers your legal liability for negligence arising from professional duties, such as where
you are being paid for design, training or consultancy work. The limits for this cover are often
lower, from £100,000 for example.
c) Directors & Officers Liability
This covers your personal legal liability as a director or officer of the company, i.e. managing
the business effectively. For example employees or customers/suppliers may successfully win
a case against you if the business goes into administration due to negligent management.
d) Employment Law Protection
This covers your legal liability following an employment dispute, although this could also be
covered under the more general Legal Expenses insurance (see below), but Employment Law
Protection policies can take a more flexible approach to claims.
e) Legal Expenses Insurance
This covers Legal Expenses you may incur during the conduct of your business that arise from
legal proceedings across a range of covers, e.g.:
I. Employment disputes - cost of defence and awards
II. Statutory disputes - such as representation in criminal prosecutions under legislation such as
Health & Safety at Work Acts, Trades Description Act and Consumer Credit Law
III. Property disputes - such as your property being damaged or interfered with by a third party or
in respect of lease disputes
IV. Taxation Investigations - this covers additional Accountant's costs or cost of defending an indepth
investigation brought about by Inland Revenue into the tax affairs of the business, or
appeals against assessments for VAT by HM Revenue & Customs and Inland Revenue
V. Contract disputes - such as between you and a customer or supplier over goods and
services provided
VI. Jury Service compensation - this may be included to reimburse salaries of staff called for jury
service or additional costs incurred as a result of having to employ temporary extra staff.
With Legal Expenses insurance, there are limitations and conditions which must be strictly
adhered to. Insurers will only admit a claim if there is a reasonable chance of success, i.e.
they will not pay expenses for cases which are 'on a wing and a prayer' or chase good
money after bad.
7. Money
This covers cash on the premises, to and from the bank or in a bank night safe. There is also
usually some cover at the home of directors or authorised employees.
There will be limits on the amounts covered, particularly overnight or carryings to and from the
bank. It is important to check these and make sure that they meet your requirements.
If collectors are involved in collecting cash from slot meter goods in customers' homes or car park
ticketing machines, then you will need to check with your insurers as to what they will cover.
8. Goods in Transit
Most package policies provide cover (or it may be an optional extra) for goods that you carry in
your vehicles, whether collecting or delivering, and will include loading and unloading. There will
be a limit to the amount of cover for any one load. This is the extent of most Goods in Transit
covers on package policies.
Some may extend to include cover for goods sent by carriers or post but there will be limits, both in
the value of a consignment and the total value of goods sent in a year.
Some policies may include Exhibition cover.
If you are sending volume goods by carriers, or if you supply goods over long distances,
particularly overseas, then you would need to arrange additional cover. This would be arranged
either by extending your existing policy or taking out a separate Marine Cargo policy.
The Marine Cargo policy can provide cover for goods in and out of the country (as well as UK only
sendings), exhibition cover, goods hired out or goods on site in temporary storage or awaiting
installation. This is an area where more and more businesses are requiring such cover.
On Goods in Transit insurance there will again be limitations and restrictions. For example, there
is usually no cover for goods left on vehicles overnight unless those vehicles are kept in a locked
building. Even during the day there may be lower Theft limits when the vehicles are unattended,
unless they are alarmed and immobilised.
Unless agreed with insurers, or covered on a separate Marine Cargo policy, there would not
usually be any cover for goods or equipment on site.
If you are involved with work which is more akin to contractors, such as installing fitted kitchens or
electronic systems, involving minor building works, then it may be necessary for a separate
Contract Works policy. This can also cover plant or equipment hired in and the Liability risks for
such work.
9. Motor Trade Insurance
If involved with installing or carrying out work on motor vehicles, including sales, servicing, repair
or recovery, then you will need a Motor Trade policy.
The Motor Trade policy generally comprises of two parts, Internal Risks and Road Risks.
Internal Risks cover is similar to that of a normal commercial package, with a few exceptions.
The Material Damage section includes the option for cover of vehicles, both your own and
customers', whilst they are on or in your premises. This can also include loss of customers'
property, if they have left some personal possessions in their vehicle whilst it is in your custody.
The Public Liability cover also differs slightly from the norm as it includes Sales and Servicing
indemnity.
Additional cover can be purchased for Wrongful Conversion, to cover a loss following the
purchase of a vehicle from a person who does not legally own it.
Where your work also involves driving vehicles on the Public Highway, then this cover needs to
include Road Risks insurance, for which you will need a Certificate of Motor insurance. This will
include the collection and delivery of vehicles, and testing the vehicles on the road.
The Road Risks cover can also be extended to include use of courtesy vehicles, loan and hire
cars by customers, demonstration of vehicles for sale (accompanied or unaccompanied by you),
and Social Domestic and Pleasure use by named or unnamed friends and relatives of directors of
the business.
