Small business insurance - a professional guide to peace of mind

Insurance is as important to your business as your accountant, lawyer, or business banking. If something goes wrong, without well-tailored policies you could lose your business, or face financial difficulties, explains Caunce O'Hara insurance expert, Adrian Stewart.

Why get business insurance?

While running your own business can be highly rewarding, risks are involved too. Should a client fall at your premises and claim compensation, or you are taken to court for negligence, the bill you face could be for thousands of pounds - even if it is subsequently proved that you have done nothing wrong. And if heavy rains flood your office, preventing you from working in it for a month, you would almost certainly want to claim for interruption to your business, wouldn't you?

For business people or freelancers working from home, it is also advisable to remember that your home insurance policy is unlikely to cover your business equipment.

Having the right insurance in place is a legal requirement in some cases. It is also essential for your peace of mind, plus the protection it provides for you, your business, your employees and your property.

How much cover?

Because insurance is a monthly business cost, it is important to make sure that you have the right amount. Too much cover, and you risk paying over the odds for something that you don't need; too little, and you could have gaps in your cover preventing you from claiming.

It is also very vital to distinguish between compulsory insurance, and what you can tailor to help keep your business protected.

Compulsory business insurance

There are two main elements of concern to most ordinary businesses: -

• Employers' liability insurance: applies if you employ anyone - including yourself if you run a limited company on your own. This is a legal requirement to protect your business against compensation claims from any employee who is injured, or becomes ill, as a result of their work. Without it, you can be fined up to £2,500.
• Third party motor insurance: is also required as a bare minimum for any vehicles used by your business.

Other insurance to protect your business

Alongside the compulsory insurance element, you should also consider covering yourself for:

• Professional indemnity insurance: to protect your business against claims from clients for faults or negligence in your work that lose them money. More about that later.
• Public and product liability insurance: needed if a member of the public is injured, due to something you, or your employees, do, or a product you make. This will cover the cost of claims against you.
• Legal expenses insurance: provides protection against legal fees, court cases and compensation that can cost thousands of pounds, even if you win the case. This covers those expenses.
• Buildings and contents insurance/material damage insurance: covers your physical assets, including your premises, equipment and stock, against theft and damage from flood or fire.
• Personal accident and sickness: often vital when your business relies on you and covers you if you can't work due to illness or an accident, both at work and outside it.

Tailored insurance for your company

No two businesses are the same, even in the same industry. In addition to choosing the cover above, you could consider other insurance needs. For example, if you run a small motor fleet, that might mean new car replacement cover. If you are a pub owner, you can be covered against the loss of your license. And if you're a property owner, there is cover for loss of rent.

What is professional indemnity insurance?

Whether you have been running your business for 10 minutes or 10 years, there's always the possibility of a mistake in the service or advice you give to your clients. That could have serious consequences if you are not insured.

This is where professional indemnity (PI) insurance comes in. It's designed for anyone who gives advice, or offers a professional service, to protect your company should a client sue you for professional negligence - even if you've done nothing wrong.

What's covered?

You're covered for the legal costs involved in defending yourself in a professional negligence case, including any compensation pay-out at the end.

Among the things you could be sued for are losing client data, goods or money, libel, or unintentionally breaching copyright, or confidentiality agreements. You may not have done any of these things, but you'd still need to pay legal costs if it goes to court.

As these can amount to thousands of pounds, and take you away from running your business while you deal with the case. Having PI insurance will give you the reassurance that you and your business are protected.

Do I need PI?

While it's not always compulsory, if you offer any kind of professional service then PI is highly recommended. Sectors including legal and accountancy, and any role where you handle client data or intellectual property will usually require PI insurance to conform to regulatory requirements. You may also need to have it as part of your contract in roles like management consultancy or IT.

Even if it's not written into your contract, PI is a good idea as it gives you the confidence to carry out your work knowing that a disgruntled client cannot bring your business down should they accuse you of negligence.

Plus, with business-specific PI cover, you can prepare for the claims that are most likely to affect your line of work, such as software errors if you work in IT, or libel if you are a journalist.

Mistakes happen, and having the right cover to protect your business makes a lot of sense. It's flexible, so you can choose the level of cover you need. This can be hard to estimate exactly, but it's sensible to base it on a worst-case scenario of the cost of putting your mistake right for a client, along with the accompanying legal fees and business losses to the client.

Freelance worker professional indemnity insurance: - Most contracts in industries such as financial services, legal, new media, or IT require their contractors to hold a certain level of PI cover.

A simple claim of negligence arising from your professional services can have potentially disastrous consequences and could cripple a small business. Freelancers take pride in their work, but mistakes do happen and perception of quality can vary from person to person. Should you receive any indication from a customer that he is dissatisfied with your work and intends to make a claim against you, your first port of call should be a company such as ours. We would be happy to guide you through the process and notify your insurer. Your insurers will appoint a solicitor if required to investigate liability, defend the claim, or alternatively agree a settlement.

The cover you need can be affected by the terms of any contract you enter into and whether it states a minimum level of PI cover. What is the value of the project and what responsibility will you have within it? You should also consider the legal costs of defending a claim. You may not have made an error, but could still need to defend an allegation against you. Legal costs can mount up frighteningly quickly.

Freelance PI costs

PI policy costs may worry some freelancers. However, with prices starting at £98, PI can be affordable and necessary protection. Protection levels can be set at £100k, £250k, £500k, £1m, or £2m purchased at an aggregated, or any one claim limit. There are also options to increase your PI limit to £3m, £4m or £5m, depending on circumstances. PI insurance is on a "claims made basis". This means that the policy in force at the time of the complaint, or claim, will respond, and not the policy in force when you carried out the work. A huge benefit of the policies that we offer is that they do not include a retroactive date. All work you have carried out whilst trading is covered from the minute you arrange cover.

If you would like any more information on business insurance, please contact me directly, or a member of the Premier Accounts team.

Adrian Stewart

Caunce O'Hara & Co. Limited