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General business insurance covers risks to
business property, continuity of trading and certain potential
liabilities. Some of these insurances are mandatory , but the
majority are discretionary
Compulsory insurances
Employer's liability
A mandatory insurance for all businesses to meet claims by all
permanent and casual employees for bodily injury, illness and
disease suffered while carrying out their duties of employment.
The statutory minimum level of cover is £5 million. The employer
must display its certificate of employer's liability insurance in
all of its premises and retain it even after the cover has expired
as past employees may make claims against the business.
Motor
All business vehicles used on the roads and in public places must
be insured. The minimum level of cover is third-party, which
covers liability for damage to the property of others and for
injuries to persons other than the driver of the business vehicle.
The business can, at its discretion, insure for fire and theft as
well. Comprehensive insurance will cover injuries to the driver
and damage to the business vehicle.
Where staff use their own vehicles in the course of business, the
employer must ensure that they are properly insured under their
personal policies.
Compulsory insurances | Voluntary insurances | Common risks:
single or multiple policies? | Case study: An Englishman's home is
his office | Keeping costs down
Voluntary insurances
The following business insurances are discretionary. They fall
into four braod categories - liabilities, buildings, business
assets and consequential losses.
Liabilities
All business have a duty of care to their staff, customers and the
general public. If this duty of care is breached then the affected
party can claim financial compensation
Employers' liability, which we have discussed earlier, is a
compulsory insurance and covers injury and illness suffered by
employees going about their employer's business. The following
insurances relate to other forms of potential liabilities:
Public liability
Public liability insurance covers financial damages and legal
expenses arising out of the death, bodily injury or damage to
property suffered by members of the general public, caused by your
business.
In a litigious society, it is not uncommon for large compensation
claims to be made for minor damages, compounded by substantial
legal fees. The amount of cover required (usually £1m plus)
depends on the nature of the business.
Product liability
Product liability insurance protects against claims by parties
other than employees for bodily injury and damage to their
property, caused by products manufactured, supplied or repaired by
your business. For example, a motor manufacturer will be held
liable if a faulty braking design leads to motor accidents.
Even where the business is not negligent, it may still be held
liable for damages and injuries suffered as a result of using its
products.
Directors' and officers' liability
Under the 1985 and 1989 Companies Acts, directors and officers are
exposed to over 200 areas of statutory liability. This means that
they can face unlimited personal liability for their actions and
decisions on behalf of the company.
The company can buy directors' and officers' (D&O) liability cover
to protect the personal assets of directors and executive officers
and to meet their legal costs. The policy will reimburse the
individual for personal liability arising out of a "wrongful act".
Alternatively, it can compensate the company itself where it has
reimbursed a director or officer for a personal liability arising
out of a wrongful act.
The policy usually does not cover pension trustee liability (which
can be insured separately), fraud and dishonest acts (covered by
fidelity insurance) and employers' liability.
Although the policy is designed to cover personal liability, the
D&O insurance premium should not be classified as a taxable
benefit when paid by the company.
Professional indemnity (PI)
PI protects advisers (eg management consultants, lawyers,
accountants) for liabilities (legal costs and damages) arising out
of advice or recommendations given in their professional capacity.
PI cover is often a mandatory requirement for membership of
certain professional bodies (e.g. the Association of Chartered
Certified Accountants).
Legal expenses
A complementary insurance to employer, product and public
liability and professional indemnity insurance - for protecting
the business against the costs of bringing or defending a legal
action.
The policy will usually cover legal and other costs incurred in
actions brought by the Inland Revenue and Customs and Excise,
employment disputes, contractual claims and alleged breaches of
"fiduciary duty" by directors.
The terms and conditions of the policy may stipulate that the
business consults the insurance company's legal helpline before
taking any action that could lead to litigation, such as
dismissing an employee.
Buildings
Buildings insurance is an all-risks type of cover to protect the
business premises against damage or destruction.
The premises should be insured for the full cost of rebuilding,
site clearance and all relevant professional fees (eg surveying
and legal). If the premises are leased, the landlord will arrange
the buildings insurance and all tenants will share the premium.
The tenants should check the landlord's insurance policy to ensure
that the sum assured reflects the full rebuilding and associated
costs
Business assets
Contents
All equipment and stock on the premises should be insured, even if
it is not owned by the business. Portable equipment will be
insured separately. The premium will be determined by the type of
equipment, its value and its likely locations.
Stock should be insured for cost price without profit. Equipment
can be insured for replacement as new or on the "indemnity" basis
where an allowance for wear and tear is deducted in settling the
claim.
Contents are covered against theft provided that this involves
forcible entry to or exit from the premises. Theft and other
dishonest acts by employees are usually covered under "fidelity"
insurance
Where the business premises are owner occupied, contents and
buildings insurance may be bundled together under one policy.
Where the business premises are not owner occupied, the tenant
will have to arrange contents insurance under a separate policy
Equipment failure
Engineering insurance covers electrical and mechanical breakdown
for most machinery. By law, certain equipment like boilers,
elevators and lifting equipment must be inspected regularly by
qualified persons, often arranged by the insurer.
Money and negotiables
Money and negotiable near-money items like stamps can be insured
under an all-risks cover. There will be separate cover limits for
cash and negotiables held on the premises and in transit.
The policy terms will depend on the nature of the business and its
trading hours and may stipulate banking and security procedures.
Goods in transit
Goods that are lost or damaged while being transported in company
vehicles or by carrier can be covered per item or per consignment.
Goods en route to overseas destinations may require separate
insurance.
Credit
Credit insurance protects the business in the event that any of
its debtors goes bankrupt. The business can insure its turnover
and even individual accounts, although the insurer is unlikely to
cover 100 per cent of turnover.
Consequential losses
Consequential losses are secondary losses suffered as a
consequence of an original loss. For example, if a fire destroys
your factory (the original loss), your business may suffer loss of
profit through inability to trade for an extended period.
Business interruption
The sum assured should be sufficient to cover gross profits over
the term of the policy, and should make allowances for profits
growth, as well as likely increases in overheads and restart-up
costs.
The term of the cover should reflect the time it is likely to take
to get the business up and running again.
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