Deepak Soni is Head of Small Business Insurance at Hiscox, who provide a range of commercial and personal underwriting services across the globe, including many to small businesses.
Running a successful small business takes energy, dedication, hard graft and determination. Once you are up and running you would not want anything to jeopardise your success, so why do so many SMEs leave so much to chance?
It doesn’t really matter what type of business you have, there will be risks and they can vary across professions. For example, you start an advertising consultancy and one morning while you are busy building your client base, an intern accidentally uploads a client’s creative images that have not been approved – you could face a claim. As an IT consultant, you might suffer a data breach or a delay to the delivery of a project; you could be liable and breach of contract legal action could follow.
It can be tempting to choose cheaper cover in order to ‘tick the box’ rather than choose a policy that has the right protection for your needs. This choice may leave an SME exposed to risks which may not be covered by cheaper alternatives and that could prove to be problematic and costly at a later date. It is like buying a helmet that is cheap, but doesn’t fit – when the worst happens it will not protect you against an injury.
Is it nice or is it necessary?
Most employers are required by law to insure against Employee Liability for injury or disease of their employees arising out of their employment (under the Employee Liability Compulsory Insurance Act 1969). However what some SMEs may not realise is that having insurance that is specific to their business needs, beyond what is just legally required, can provide protection across all risks they may face.
Whatever industry you’re in, the foundation for protecting your business is having a comprehensive risk management strategy in place, including the correct insurance for your needs. Key questions to ask when looking for a policy include:
- Does the policy cover claims of negligence arising from mistakes, such as giving incorrect advice, omitting important information or failing to deliver services?
- Will it cover defense costs? If you’re sued, your insurer should appoint a lawyer to defend you against covered claims, even if you haven’t made a mistake or the legal action is groundless.
- Look at the experience the insurer has in insuring your business sector, specialist expertise counts for a lot in your time of need.
- Do they have an in-house legal team or do they outsource their claims? Again this could impact how your claim is handled.
- Have you heard of the company and do they have a good reputation? After all, you are trusting them to protect one of your most valuable assets.
- Can you get coverage that is retroactive to a certain date? This protects you from past acts, provided you’re not yet aware of any claims.
- Does the policy cover claims arising from work done outside the United Kingdom? If you travel for business, or your client has offices in other countries, you need broad geographic protection. Note, some policies require that the claim must be filed in the U.K. or wherever else your insurance company specifies.
- Does the policy include employees, temporary staff and independent contractors? If the work is done on behalf of your business, their actions should be covered under the policy.
Once those underpinnings are in place, some industry-specific coverage to look for includes:
could benefit from insurance policies that include copyright and trademark protection. Let’s say you develop an advertisement for a client and accidentally use a name or logo trademarked by another company, infringing on that company’s legal rights. Should they decide to sue you, your policy should pay for a solicitor to defend you.
Insurance for IT professionals can provide cover that includes software copyright infringement. There’s the possibility you will unwittingly use someone else’s copyrighted software. Similar to the coverage recommended for other knowledge professionals, you also could be protected if a client alleges you didn’t deliver what you promised. A new invoicing system you built, for example, may not deliver the functionality the client expected and you could be sued for negligence.
Business consultants should look for assurance that the insurer they choose has the experience and positive reputation to defend against covered claims, even in the case there hasn’t been a mistake. For instance, you may design new internal processes to increase productivity. It’s possible that the recommendations aren’t implemented according to your direction and productivity drops 15 percent, rather than rising. While the drop-off wasn’t your fault, the client could still sue you for lost income and other damages.
Next time you buy an insurance policy and you think you are getting a ‘cheap deal’ ask yourself the following questions:
- Why is it cheap?
- Do I know this company?
- What would happen to my business if the policy did not respond to my needs?
If the answers to any of these questions leave you wondering or concerned, you probably need to think again to ensure that you have the cover for your business needs.
*This article does not offer legal, tax, or insurance advice related to the needs of any specific, individual business.