MT Expert - Finance: Insurance, explained

What kind of cover do small business owners need to ensure peace of mind? Insurer RSA explains.

Last Updated: 31 Aug 2010

UK businesses are required by law to hold employers’ liability, third party motor and professional indemnity insurance. But in a litigious society with constant threats of lawsuits, as well as fire, theft, flooding or vandalism, there is much that the insurance industry can do to help protect companies’ staff, customers and operations.

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Although not required by law, there are various types of insurance that are considered good risk management and can ultimately be vital for a company’s longevity. When an incident occurs and closes operations, Business Interruption cover compensates for the continued operational expenses and the profits (or losses) that would have been earned during the time spent ‘closed’.  Similarly, if there is someone in a company without whom the business could not function, Key Person insurance can protect the business against the loss of income resulting from the person’s disability or death.

Just as consumers purchase insurance for their home, similar covers are available for company premises. Building insurance covers the full rebuilding cost and can be extended for 'special perils' such as explosions, riots or malicious damage. Contents and stock cover reimburses a business for the cost price value of stolen or destroyed goods and can cover deterioration of stock as well as seasonal stock fluctuations. If a company transports goods from one site to another, Goods in Transit insurance covers the stock against loss or damage while in the business’ vehicle or when sent by carrier.

Often the public can pose a risk to businesses. If a business allows clients or customers on their premises, any accidents or injuries that occur on site are its responsibility. Public Liability insurance covers any damages the business must pay. Likewise, if a company makes, repairs or sells products for the general public, Public Liability insurance covers for any defects in design or manufacture that lead to injury.

Managers are also taken care of with Directors and Officers insurance. If a director is accused of failing in their duties, they face the threat of an action being brought against them with devastating consequences. Insurance will cover compensation and legal fees.
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While a business can take every precaution to protect itself against external problems, often a company’s biggest threat is within.  Employee Theft and Fraud cover is also available.

Finally, looking at the financial side of things, even money and credit can be insured. Money (cash loss) insurance will cover a business’ cash or cheques in and out of business hours and can also include compensation for injury during the theft. Trade credit insurance covers against the risk of bad debt due to the insolvency or default of their buyers, thereby reducing the impact on cashflow of bad debts and late payments.

Insurance is designed to give businesses piece of mind if things go wrong and with the industry as a whole taking in an annual income of about £34 billion, UK businesses are in good hands.

David Greaves is SME Trading Director of commercial insurer RSA.

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