I’m starting a business – do I need to worry about insurance?
Gerry Donnachie, who heads up the business underwriting team at AXA Insurance, answers your insurance dilemmas. This time: which insurance products does your start-up need?
I’m in the process of starting a business, when do I need to worry about insurance?
My first reaction is that business insurance shouldn’t be a worry – it should take worry away! But, realistically, I know that deciding what you need (and what you don’t) is not easy, especially at the start.
I’ve created a timeline below, so you can see what type of insurance I’d expect a start-up to get and when it’s worth purchasing it.
As an underwriter, I can’t resist adding a note of caution here! There is no average ‘small business’ (just as there is no ‘average’ person, I would argue!), so this is just a rough guide to help you get your head around the different options.
When you get a business insurance quote, you’ll be able to tailor it to your individual circumstances.
You can get a quote online(AXA gives 10 per cent discounts via its website), or you can get recommendations and advice from our business insurance advisers on 0330 159 1520. Lines are open Monday to Friday (8am to 8pm) and on Saturday mornings (9am to 2pm).
Start-up business insurance timeline
Step 1: When you’re working on your business idea
Once you have your business idea, it’s likely you’ll start meeting with suppliers and potential clients, viewing premises, holding meetings, equipping yourself and so on. That’s all before you even start trading.
At this point, you should consider public liability insurance (most small businesses take this out). It covers your responsibility to visitors, people you meet and the public for things like property damage or incidents that result in injury. That can be as simple as someone tripping over your bag or delivery boxes left on a pavement, claims you’ve backed your car over someone’s lawn (to quote just a few of the many scenarios we see).
If you plan to pitch for work with corporations, local councils or public bodies (National Trust, etc), then it’s worth talking to them too at this stage. Certain types of business insurance may be preferred or required (most often, public liability) and they may demand minimum cover limits.
Step 2: When you equip yourself for business
Home insurance policies don’t automatically provide cover for properties that are used for business too.
You’ll need to inform your home insurer that you’re starting a business: that will ensure you remain adequately covered and your policy notes that it is used for business. This should be a simple phone call rather than jumping through any extra hoops!
When you get a public liability (or other business insurance policy), you can also add cover for business contents kept at home (including stock), business equipment and/or own tools. The first one covers things like mobile phones, computing equipment, cameras and so on. The second is more specialist – tools used in construction, carpentry and crafts (this can also include things like trailers, machinery, portacabins).
Finally, if you plan to use your car for your business, you should tell your motor insurance provider too. If you just commute to one place (say, the same shop premises or office) every day – that shouldn’t affect things. They’ll only need to know if you’re regularly travelling to multiple business locations (say, you visit customer sites) as that will change the cover required. Other specialist covers are van insurance, mini fleet and haulage cover.
This all might seem like a faff, but our experience shows that when people use vehicles, items and premises for business, the level of risk of a claim does change. Businesses often travel more, transport equipment more, use it more intensively, or just in different ways from a normal policyholder.
Step 3: When you start trading
- Goods: If you make or sell goods, you should check that your public liability policy extends to cover product liability. This covers you if goods are defective and cause injury or damage in some way. In the food and drinks industry, it’s particularly important, as it covers things like food poisoning outbreaks.Even if you don’t manufacture the goods yourself, it’s worth being aware that under law both the manufacturer and the retailer can be held to account for injury and loss caused by defective goods. See last month’s article on retail insurance for more detail.
- Services: You’ve started your business because you’re good at what you do. No matter how good you are, you’re only human though (even underwriters!). It’s worth considering professional indemnity insurance – sometimes customers ask for it before you work as a contractor for them, but you may have your own reasons too.If customers rely on your advice, you may need this. A good example would be a marketing consultant who advises a company on how it spends its budget, or an accountant who produces financial forecasts. Something as simple as missing a ‘0’ off a figure in a datasheet could lead clients to lose money. Professional indemnity also covers you if you breach copyright, defamation, data protection, and many other things. So, graphic designers who work with commercial imagery and businesses that store customer information are among those who take this out.
Step 4: When you start to grow your business
- Business premises: Most people start their business from home these days, and many never open premises. But, if you do buy (or rent) separate business premises, you’ll be able to add buildings and business contents insurance (including stock cover) to your business insurance policy too.N.B.: If you’re renting premises, you should check the lease carefully to understand who is responsible for insuring what. Generally speaking, if it goes with you when you move out – you cover it, but if it’s a fixture (like refrigeration units), that’s the landlord’s job. Check carefully how your rental agreement is worded, however, as everything depends on your individual contract!
- Employees: I’ve saved this to last, simply because three quarters of small firms in the UK don’t have staff, and many prefer to operate as sole traders.If you do start to work with other people – it’s vital you check whether you need employers’ liability insurance.This is legally required (and fines can be as much as £2,500 per day that cover is absent!).It’s needed for most types of employee (including temporary, casual, part-timers, volunteers and apprentices), but some types of sub-contractor are exempted, as well as close family members.
Again, my best advice is to check what you need now, and keep on checking as you grow!
Get a quote for AXA business insurance online. Alternatively, speak to one of AXA's advisers on 0330 159 1508. Lines are open Monday to Friday, 8am to 8pm, and Saturdays, 9am to 2pm.