Being hit by an unforeseen emergency – and having no contingency plan for surviving and rebuilding – is one the most frequent reasons small businesses fail. Find out why you need business insurance, and what exactly needs to be covered.

One in five businesses faces a major obstacle every year, and 80% of small and new businesses fail to plan or secure suitable insurance – an unnecessary risk that could jeopardise everything you have worked so hard to achieve. Protect your business with these simple tips on why you need insurance, and what needs to be covered.

Why You Need Business Insurance

The largest unwarranted risk small businesses take is not having adequate insurance cover to protect them should the worst happen, research from Lloyds TSB Insurance suggests.

“No matter how well a business is run, disaster can strike at any time, putting any business at risk,” says Gary Hurry at Lloyds TSB Insurance. “As a small business owner, it’s only natural to put all your effort, energy – and money – into your business, therefore it’s essential to make sure you have all your bases covered.”

It’s small businesses that are hardest hit by lawsuits, crime and emergencies that hamper trading, yet the majority have no insurance to deal with the impact of floods, fires, storms and other possible emergencies, according to findings by Populus.

That’s why most small firms (at least 7 out of 10) would go out of business if they experienced an emergency in their first few years, since they simply wouldn’t have the resources to recover, the Association of British Insurers reports.

“There are always going to be things that happen that you can’t fully prepare for but many of the issues that cause the most worry can be covered by insurance, often at relatively low cost,” says Mark Till of Barclays Business Insurance. “With over one in seven business owners closing their business at some point because of one of these threats ¬– on average for 13 weeks at a time – basic insurance is an essential rather than optional extra.”

Even those small business owners that do have basic insurance generally assume that their insurance covers them for every likely eventuality, when in fact often very real risks are add-ons.

Protect your business by taking out the necessary insurance to continue operations if disaster hits. Of course, every business has specific insurance needs, but this is our basic checklist of what you need to make sure your policy covers:

Small Business Insurance: What Needs to be Insured

• Asset cover. Make sure you don’t deliberately or mistakenly undervalue your assets, as losing them often proves fatal for small businesses. It is also important to carry out regular checks to make sure your inventory covers all your newest assets, each year or even more often in the first couple of years when your business is growing and changing rapidly.
• Emergency cover. “Small to medium-sized firms are particularly vulnerable to the unexpected event that could bring them down,” says Stephen Haddrill, the Association of British Insurers’ Director General. “Plan for the unexpected - doing so will make the difference between survival and going under should the worst happen.” To establish how much cover you’ll need, think carefully about the impact each possible emergency would have on your business – think about the costs of getting back on your feet, how long you would be out of action for and loss of trading time, and how damage or destruction of premises (yours, suppliers, clients, utilities suppliers) could affect the business and impact on trade. Check that your insurance covers you for risks like floods, storms and fires, and that the cover will be enough to enable you to recover.
• Public and products liability cover.
• Employers’ liability cover. It is estimated that over 50,000 small businesses are employing seasonal and part-time staff without adequate Employers’ Liability (EL) cover - and not only are they breaking the law, they could also be fined up to £2,500 per day, plus be liable for compensation and legal fees if an employee is injured or becomes ill at work, according to MORE TH>N Business. "There is a general lack of understanding around the Employers’ Liability legislation," says Rachel Cotton, MORE TH>N Business Manager. It is a criminal offence not to have EL insurance when taking on temporary staff, including unpaid volunteers and work-experience students, cleaners, agency staff, gardeners and security guards.
• Personal accident cover. This is usually an add-on, but is hugely important for small businesses, where having one employee out of action can bring operations to a standstill.
• Portable property cover. Another add-on, if you are storing or using valuable property away from your premises it may not be covered under your basic insurance policy.
• Business Interruption cover. This is hugely important in the first few years of a startup business when being forced to stop trading due to an emergency can spell business failure.
• Legal expenses and debt disputes cover. The growing trend toward a culture of litigation and legal action poses a growing risk to businesses, especially small businesses and startups where legal costs, even if the business eventually wins the case, can be crippling. "Despite the risk of litigation, almost a quarter of SMEs admit that they are not aware of the extent of their liabilities as an employer,” says Doug Barnett, risk control strategy manager at AXA Insurance. “The cost of bringing or defending a legal action can put serious financial pressure on a business, whether it eventually wins the case or not."
• IT and vehicle breakdowns
• Crime cover. If you think your security system will protect you from robbery, consider this: more than one in ten small businesses in the UK are ripped off by staff, who secretly make off with on average £3,000 worth of cash, goods and equipment, according to research by Eagle Star Small Business Direct. And worryingly, many insurance policies do not cover staff theft. Another startling fact? Arson is the most financially crippling crime small businesses face, accounting for almost 40% of crime claims and averaging £40 000, according to AXA – and without insurance, 80% of businesses fail to recover from a serious fire. Malicious damage claims are also becoming increasingly expensive. “One in five claims we process on behalf of businesses is a result of criminal activity which highlights the severity of the problem,” says Neil Mercier, property insurance manager at AXA."

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