- Financial planning
- 5 minute read
Owning a business can be both rewarding and challenging. Every business, no matter its size, faces a range of risks. These hazards threaten a company’s ability to meet its goals and objectives.
Fortunately, business owners can protect themselves from risks by planning ahead and putting business protection insurance in place. In this guide, we look at five common risks businesses face and explain how business owners can prepare for them.
Physical risks include dangers that threaten a company’s physical assets. Fire and flooding are some examples of physical risks. These have the potential to destroy buildings and equipment or cause serious damage that is costly to repair.
Three forms of business insurance that can protect against physical risk include:
- Commercial building insurance: this is designed to protect you if your business property is damaged. It’s a good idea to put this form of insurance in place if you own the building you operate your business from. Note, however, that commercial building insurance only covers the building itself. It does not protect contents.
- Business equipment and office contents insurance: this form of insurance is designed to protect everything you require for the day-to-day operation of your business. This includes computers, laptops, phones, tools, and office furniture. If these items are damaged or destroyed, insurance will cover the cost of repairs or replacements.
- Stock insurance: this is designed to cover the cost of replacing stock if it is damaged, destroyed, or stolen. If your business holds stock, either on premise or in storage, it’s a good idea to put stock insurance in place.
Business interruption risks
Businesses can be interrupted, and subsequently suffer a loss of revenue, for a wide range of reasons. For example, a natural disaster such as a flood can put a business out of action temporarily. Similarly, a major theft can leave a business unable to operate normally.
Two forms of insurance that can help protect against business interruption risks include:
- Business interruption insurance: this form of insurance is designed to cover any financial losses that a business sustains as a result of interruption. It covers you for loss of income during periods when you cannot carry out business as usual due to an unexpected event.
- Equipment breakdown insurance: this is designed to protect your business against sudden and unexpected mechanical or electrical failure. It can help protect your company against unforeseen expenses.
All businesses face a range of people risks. One example is the risk of an employee being injured while at work. If they’re injured and you’re found liable, your business could face substantial legal fees and medical expenses. Another example is the death of an employee. This may seem almost inconceivable but it's something that does happen. The risks are significant. Consider the uncertainty if one of two equal business co-owners passed suddenly.
There are a few different forms of insurance that can help protect against people risks. These include:
- Employers’ liability insurance: this form of insurance, which is a legal requirement for most businesses in the UK, provides protection if one of your employees becomes ill or injured as a result of work.
- Personal accident insurance: this insurance covers serious injury or death caused by an accident. It can pay out for lost income, medical costs, and hospitalisation.
- Death in service insurance: this is an employee benefit that pays out a lump sum if the employee dies while on the business’s payroll. The employee’s family is usually entitled to a lump sum equal to between two and four times the employee’s salary.
- Relevant Life Plan: this is a life insurance plan available to employers that provides an individual death in service benefit to employees. It pays out a lump sum if the employee dies or is diagnosed with a terminal illness. This form of protection works well for owner-managed limited company businesses. Business owners can provide a lump sum for their family in the event of their untimely death with the premiums paid by the limited company tax-efficiently and the proceeds paid to beneficiaries via a trust.
- Key person insurance: this enables an employer to protect their business against the loss of a key employee through death or illness. If a key employee dies or is diagnosed with a critical illness, or cannot work through illness, key person insurance will pay an amount of money directly to the company or partners, helping them to continue trading as normally as possible and protect their profits.
Legal issues are part and parcel of running a business. Legal risk refers to the potential loss that a business can suffer as the result of a legal issue.
Business protection insurance that can protect against legal risks includes:
- Professional indemnity insurance: this form of insurance is designed to protect businesses that provide advice or expertise to third parties. It provides protection if things don’t quite work out as you planned. For example, if you give incorrect advice and a client instigates legal action, professional indemnity insurance may cover the compensation claims and legal costs.
- Public liability insurance: this is worth considering if your business comes into contact with members of the public, whether that’s at your premises or elsewhere. It can protect you against compensation claims for injury or damage made by clients, customers, suppliers, or other third parties.
- Product liability insurance: this is designed for businesses that design, manufacture, or supply products. Should a customer suffer damage as a result of a faulty product provided, it should provide cover.
- Directors’ and officers’ (D&O) insurance: this form of insurance, which is also known as management liability insurance, protects you if any claims are made against you in your role as company director. As a company director, you have more responsibilities than your average employee. This means you face a higher level of risk if something goes wrong.
Technology risks include the risk of a cyber-attack and the compromise of data. This risk shouldn’t be ignored. Every day, there are around 65,000 attempts to hack small and medium-sized businesses (SMBs) in the UK. Meanwhile, nearly 50% of UK companies were hit by ransomware attacks last year with the average remediation cost of a successful attack amounting to $840,000.
To protect your business against technology risks, the first step is to put a robust cybersecurity framework in place. Ensure that all networks, devices, and data are fully secure. Employee training is also crucial. All employees accessing the network should be trained on best cybersecurity practices.
The next step is to consider insurance. One form of business insurance that can help protect against technology risk is:
- Cyber and data insurance: this is designed to protect against complex online risks. As businesses have become more reliant on computer systems, cyber and data insurance has emerged as an increasingly essential business insurance policy to have.
Business protection: identify risks early
As always, the key to managing risks is to plan ahead. No matter the size of your business, it’s crucial to identify risks early and take steps to prepare for them. Being well prepared can minimise the reduction in earnings if your business does experience an unexpected event. If you have questions about what kind of business protection insurance is right for your business, it’s a good idea to consult a financial adviser.
To find out more, or if you have any questions about business protection, don’t hesitate to request a call back by clicking the button below. You can also find more information about business risks in our Guide to protecting your business.