#45: Top Tips for Start-Ups – Insurance Issues

Welcome to my final Start-Up Business expert article! It’s been a long road and a pleasure to have you long for the ride. I do hope you will refer back to my expert articles in the future, as well as the insights in my newsletter.

Over the past few articles I have been sharing my top tips with you for people, legal and information technology issues you may find having just launched your business. For my final article I want to look at something very important – insurance.

Insurance is an essential part of any business’ considerations, especially for start-up companies when it is important to ensure your cover is as wide as possible to give you the correct protection but also to ensure costs are competitive.

The ABI (Association of British Insurers) recently released statistics showing that only 23% of companies that suffer a major loss are still trading two years later. This could be because they were foolish enough to start trading without insurance but the most likely explanation is that the insurance did not respond adequately following the loss. This could be because the cover was inadequate or because the policyholder did not understand what was required of them in respect of the policy’s terms, conditions and warranties.

To consider this in context, it is important to understand the whole basis of insurance. It is, in simple terms, “risk transfer”. You are asking somebody else to bear the burden of some of the risks – mainly financial – that you would be unable to carry by yourself. For example, few businesses would be able to, say, replace their building or all of their stock if either were to be destroyed in a fire, storm or flood. Similarly it has to be recognised that as a society we are becoming more litigious and you should protect yourself against any potential liability you may incur for injury, property damage or financial loss.

The ABI also recently reported that of every pound paid out in claims by Insurers 83% related to legal costs, substantially inflating the costs of even a minor claim.

So where do you go for the best advice on the financial exposures you face and the insurance you need? Some insurance companies are set up to deal on a direct basis but can only offer you their own products, and are unable to advise you on products not within their policy range. In our opinion the best course of action is to talk with an insurance broker who will be able to offer you access to a wide range of insurers and specialist schemes, to ensure you get the widest cover at a competitive price. But not all brokers are the same and below are a number of handy tips you should consider in your selection process:

1. Selecting a recommended broker

Ask industry peers, friends and even family if they are able to positively recommend an Insurance Broker. Speak to two or three different firms for advice and then compare who is most responsive to your needs and instils you with confidence. Give weight to the broker that will offer to meet with you to discuss your business and help identify the risks you face and try to agree some service standard levels that meet your particular requirements. Ensure that they fully understand your business and ask them who will be providing on-going support and avoid telesales companies to whom you will just be a name on a screen.

Often the only time you find the true value of your insurance is in the event of a claim so ask the broker how they help you with claims and avoid any who passes you on directly to the Insurers.

It is possible to buy online but there can be pitfalls. Informed product face to face advice is very often the better option.

2. Make sure you get written quotations

Make sure you are supplied with full details of all Terms and Conditions that will apply, before giving instructions to go on cover. Read all documents carefully and ensure that you are able to comply in full. If you cannot you should let your broker know.

3. Work with the Broker to carefully assess your own risk

There is no benefit to over insuring and to under insure could leave you in serious financial difficulties, so make sure all of your sums insured are carefully calculated.

Similarly, make sure you have accurate estimates of your turnover and projected wages and estimated gross profits, etc.

4. Professional Risks

In addition to obvious business exposures such as asset protection, etc, it is important that you consider professional risks which could, amongst other things, include financial covers such as Directors & Offices insurance, Libel and Slander insurance, Fidelity insurance, Trustees Indemnity and the like.

5. Make sure you meet your legal requirements

You are required by law to have Employers Liability insurance. This is required by Statute and you will face penalties if you do not have the correct insurance.

Similarly if you operate cars, vans, lorries or other motorised equipment on a public highway you are required to arrange at least Third Party insurance under the requirements of the Road Traffic Act.

6. Make sure you are aware of contractual requirements

In addition to insurances which you must arrange by statute, you may also find yourself asked to have in place, or effect, certain covers as part of a contractual arrangement. These normally relate to Professional Indemnity which, in short, offers cover for financial loss arising out of errors or omissions in your advice.

Such contracts can also ask for Public Liability insurance and, if appropriate, Products Liability insurance.

It is worth noting that these covers are often basic requirements of contracts with local authorities and other public bodies.

7. Consider your Own Risk Profile and Manage Your Risk

Insurers will often allow discounts if you are agreeable to a deductible (or excess) to be applied to your policy. You may also select to self-insure some aspects of your risk and you should discuss the options available to you in depth with your selected broker in establishing your own risk profile.

Insurers will normally reward a well-run business with lower premiums as good housekeeping and good risk management will minimise their potential exposure to claims. Always try to follow your industry’s best practice standards and also ensure you comply with the requirements of Health and Safety legislation and guidance. Always do your best to discharge your duty of care to all Third Parties as well as your moral obligation for the safety and wellbeing of your staff.

8. Budget Yours Costs Correctly

Remember that expenditure in respect of insurance may not limited to the cost of the premium being asked to enable the risk transfer. You should also budget to include the following, as relevant to your particular trade:-

• Fire extinguishing appliances
• Good quality door locks and window locks
• Other physical security such as bars or grills
• Health & Safety consultancy and implementation
• An intruder alarm
• CCTV
• Staff training
• A fire alarm

9. Review Your Arrangements Regularly

When you have worked with your Broker to design a tailor made insurance programme that matches your needs and budget, do not consider that an end to the matter.

All businesses alter over a period of time maybe by changing their business focus or acquiring extra staff or vehicles. Newer businesses tend to change more frequently and you should therefore make sure your Broker is aware of all developments so that he may advise you accordingly.

10. Further Financial Advice

Make sure your Insurance Broker is able to offer other financial advice which would protect your business or find an Independent Financial Adviser who is skilled in the needs of a business. They should be able to advise you on for example, insuring important people in your business (Key Man Assurance) and protecting the shareholdings of investors in your business (Share Purchase Assurance). They should also be able to help you out with such things as Pensions and other Employee Benefits, typically Group Life Insurance, Group Private Medical Insurance, Health Insurance and the like.

Well, that’s it folks! Do refer back to my articles, whenever you wish, and don’t forget to sign up for my newsletter for regular insights and news. I wish you all the best for the future, and don’t forget you can contact me anytime if you feel you need any extra guidance.