Mind Your Business - 8 October 2008
The Business of Insurance
Supporting information:
Insurance or Assurance?
These are two distinct terms in insurance circles and it is important to understand the difference between the two.
Insurance refers to something that might happen - your premises might get destroyed by fire, a customer might trip up in the store and break their nose on a shelf, one of your employees might have an accident at work and so on.
Assurance refers to something that will happen - you will die at some point in time. We therefore take out life assurance as opposed to life insurance.
Taking out insurance is a gamble against something not happening. Many might see it as a waste of money if nothing ever happens to them but when disaster does strike it is vital and can mean the difference between the business continuing or closing altogether.
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What Insurances do Businesses need?
There are some legal requirements for insurance cover that businesses have to take out. Other insurance is advisable but not legally required. The following is a guide to the main ones.
- Employers liability insurance: A legal requirement for any business employing at least one person. This insurance covers the employer for any injury, accident, illness or disease sustained by the employee as a result of their work. The current legal minimum cover is £10 million.
- Public liability insurance: Legally required cover for a business in the event that anyone entering the premises of the business sustains illness, injury or disease. This is the insurance that covers the business if a customer slipped and broke their nose on a shelf! The extent of the cover is largely based on what the company expects to have to pay in the event of a claim being made against it. Usually cover is arranged for at least £5 million but can be much higher than that.
- Product liability insurance: This insurance covers the business in the event that damage or injury is caused as a result of a faulty product. This damage does not have to be physical but could also include damages suffered by another business as a result of using a faulty piece of equipment. For example, a firm might lose business because they had been supplied with a piece of faulty software.
- Goods-in-transit insurance: Taken out to cover a business that might suffer form a loss of goods that are transported by a carrier or delivery firm.
- Property and buildings: Cover for damage to property or buildings. The reason for the damage might be a factor in the cover: for example, some insurance companies will not provide cover against damage to property caused by riot. Most natural causes of damage such as lightning, flood and storm will be covered but may make the premiums more expensive. Terrorist attacks may also not be covered so it is up to the business concerned to ensure that they specify what cover they want and that the insurance company concerned is prepared to cover that risk - it varies considerably.
Businesses never know when they will be faced with having to deal with problems which can cost them large sums of money and lost revenue. Insurance helps cushion the risk.
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- Contents cover: Insurance taken out against damage or loss of contents in a business premises. For example, the firm might have suffered a break-in and had a number of computers stolen or the memory stolen from inside them or had PCs damaged during the break-in.
- Other forms of cover: In theory there is nothing to prevent any firm taking out any insurance cover it likes - the main issue would be whether the insurance company was willing to take on the risk and, for the business, whether the size of the premiums would outweigh the benefits of having the cover. Some firms will therefore take out insurance to cover them against absence of key members of staff; others might take out insurance in case the business suffers some interruption to its business activities. For example, a business might have to be closed down while a road or nearby structure was repaired; a business might have to close down temporarily as a result of a police investigation - some businesses were affected in this way following the post-July 7th explosions in London in 2005.