There are many different types of business insurance. What are the best options for you, your business and your staff?

Risk is an inevitable part of life. We can’t predict what’s going to happen with complete certainty but we do try to prepare for consequences. We routinely wear a coat, in anticipation of a sudden turn in the weather, while wearing our seatbelts when driving or as a passenger is standard practice.

Running a business is no different. We cannot be sure of everything that will happen, but we can take steps to offset some of the consequences of events outside our control, such as the damage caused by a flood or an injury at work sustained by an employee.

Whatever the cause, it is important to have an understanding of the different types of insurance that a business can take out to reduce the financial and business impact of something going wrong.

Your insurance company or broker will also give you advice on how to manage your business risks better, from suggestions on how to improve premises security to highlighting hidden risks for you to manage by improving your business processes.

Type of insurance

There are many different types of insurance available for businesses. The question is which ones are right for you.

It is useful to think of insurance covering three different types of eventuality:

  • Property insurance: This covers damage caused to buildings or equipment from hazards such as fire or flooding. You can also protect against the disruption that such an event could have on the business. Imagine if the premises had to shut down totally or if valuable equipment had to be replaced. Business interruption insurance would cover the cost of operating from a temporary location while your own building is under repair.
  • Liabilities: Your business faces a range of potential liabilities to members of the public, employees and customers. For example, a visitor to your premises falling over a cable, an employee being electrocuted by a faulty piece of equipment or a customer being seriously injured by a defective product. While insurance won’t protect against these events happening, liability insurance can meet the cost of compensation and the legal fees involved. Legal expenses insurance can pay for the legal costs involved in defending or pursuing a claim. If you are a professional, like an engineer or accountant, professional indemnity can cover the cost of compensation to your clients if they lose money as a result of the advice you gave them.
  • Financial risks: Your business also runs financial risks, and it is important to consider how to best protect against them. We have all read newspaper stories about trusted employees stealing large amounts of money from their employer or about small businesses that were forced to close when large customers went into liquidation unexpectedly. Fidelity insurance and credit insurance, respectively, can deal with these risks.

Compulsory insurance

In Ireland, the only legally required form of insurance that a business is obliged to take out is if your business uses a motor vehicle. In this case, like other road users, you are required to have third party motor insurance in place to cover someone getting injured, or if their property is damaged as a result of your (or an employee’s) use of a motor vehicle.

Additional cover often taken out by motorists includes third party fire and theft insurance, which covers third party motor liabilities, as well as loss or damage to your vehicle caused by fire or theft.

Comprehensive insurance, which covers third party fire and theft, as well as accidental damage to your vehicle, can also be taken out. Some comprehensive policies provide useful personal accident benefits, or cover against theft of personal belongings from the vehicle.

Make sure that if you are using a car or other vehicles in connection with your business, you have the right cover in place. Most insurers will offer policies specifically designed to meet the requirements of your type of business, be it a taxi, farm, distributor, building firm etc.

What to buy

As you can see, there are many different types of insurance. It can be difficult to work out exactly what to buy, given your business’s particular needs, not to mention your budget. Like any other purchase, it really pays to shop around and understand the different products offered by insurers, the risks covered by their policies, and the risks that are excluded.

It is important to to understand the fine print. Some policies will require you to bear more of any loss that occurs than a competing policy, so that may be one reason why the first policy looks so cheap.

Many insurance companies have put together special package policies, which contain the different types of insurance usually needed by a particular type of business. For example, insurance companies will offer a shopkeeper’s ‘combined’ policy, which covers the usual risks that retailers will wish to insure against.

Thankfully, plenty of advice is at hand to guide you through the insurance maze. This comes from the insurance companies themselves, many of whom will deal directly with businesses, by phone or via their website, or from insurance brokers, who are independent insurance professionals who advise their clients on the most suitable insurance cover for their needs.

You can check that the insurer or insurance broker that you are thinking of using is authorised, by checking the Central Bank of Ireland register.

 

4 Action Points

1

Work out what risks you most need to cover against.

2

Work out your sums insured accurately. Don’t waste money by over-insuring and remember that “cheapest” does not necessarily mean “best”. Be careful about what is covered and what is excluded.

3

Describe your business fully and accurately, including full details of any claims. You are obliged to answer any questions from an insurer honestly and to the best of your knowledge. If you don’t, your insurance company may refuse to pay a claim under the policy.

4

Take steps to fix any known risks e.g. defective safety guards, and to manage other risks e.g. additional security precautions for your premises. Consider how much of any claim you would be willing to bear, as a higher claims “excess” could help reduce your insurance premium.