When business owners think about insurance, they will often consider the obvious risks first: fire, theft, accidental damage, vehicles and perhaps an employee injury. But some of the most financially disruptive problems can arise from risks that are less visible.
Insurance cannot prevent something from going wrong, but the right cover can help a business recover when it does. Understanding the less obvious risks is therefore an important part of managing a company responsibly.
Business Interruption Is About More Than A Damaged Building
Imagine a fire damages a business premises. Property insurance may help with repairing or replacing the physical assets, but what happens while the business is unable to operate normally?
There could be lost income, ongoing wages, rent, utility bills and other expenses that continue even when trading has been interrupted.
This is where business interruption insurance can play an important role. Depending on the policy, it may help cover certain financial losses following an insured event and give a business greater breathing space while it gets back on its feet.
Suppliers Can Be A Risk Too
A business does not necessarily have to suffer damage itself to experience disruption.
A manufacturer could rely on a specialist supplier for a critical component. A retailer might depend on a particular distributor. A restaurant could rely on a small number of suppliers for essential ingredients.
If something happens further up the supply chain, the consequences can eventually reach the customer.
Businesses should therefore consider how dependent they are on particular suppliers and whether their insurance arrangements take relevant supply-chain risks into account.
Professional Advice Can Create Professional Risks
For consultants, designers, accountants, engineers, advisers and other professional businesses, the main risk may not be physical damage at all.
A client could allege that incorrect advice, an error or an omission caused them financial loss. Even where a business believes it has done nothing wrong, defending a claim can be expensive and time-consuming.
Professional indemnity insurance can provide protection against certain claims relating to professional advice, services or errors, depending on the terms of the policy.
Employers Have Responsibilities Too
Taking on employees brings additional responsibilities and risks.
Employers’ liability insurance is a key consideration for many businesses with employees, helping protect against certain claims for illness or injury arising from employment. In the UK, most employers are legally required to have employers’ liability insurance, subject to specific exemptions.
It is important not to assume that having employees simply means adding a policy and forgetting about it. Changes in staffing levels, roles and the way people work can all be relevant when reviewing cover.
Small Businesses Can Have Big Exposures
One of the biggest misconceptions about business insurance is that smaller companies do not need much cover.
In reality, a small business may be particularly vulnerable to an unexpected financial shock. A major piece of equipment could be damaged, a key customer could make a claim, or an interruption could leave the company struggling to meet its regular costs.
The potential consequences may be proportionately greater for a small company with limited cash reserves.
Look Beyond The Obvious
The best time to think about an overlooked business risk is before it becomes a claim.
Regularly reviewing your insurance arrangements can help you consider not only what could physically happen to your business, but also what could interrupt trading, lead to a claim from a customer or employee, or leave you responsible for unexpected costs.
Every business is different, so there is no universal insurance package that suits everyone. The important thing is to understand the risks associated with the way your business actually operates and make sure your insurance arrangements reflect them.
Featured image by Thirdman via pexels
