Business insurance

The law requires employers in Great Britain, with a few exemptions, to hold employers' liability insurance of at least £5 million, and requires motor insurance for any vehicle used on a road or other public place. Public liability, professional indemnity, property, business interruption and cyber cover are a choice. Insure property for its full rebuild or replacement value, because an average clause cuts a claim in proportion to any shortfall.

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Insurance the law requires

Employers' liability insurance is compulsory under the Employers' Liability (Compulsory Insurance) Act 1969 for an employer with staff normally based in England, Scotland or Wales. It pays compensation to employees injured or made ill by their work, on site or off it. The policy must come from an authorised insurer and cover at least £5 million, and that minimum includes legal costs. Northern Ireland has its own legislation, enforced by the Health and Safety Executive for Northern Ireland.

The exemptions are narrow. A family business is exempt only if every employee is a close relative and the business is not a limited company. A company whose only employee is its owner, holding 50% or more of the issued shares, is exempt, and it comes within the Act once it takes on an employee. Whether someone counts as an employee depends on the working relationship, such as who controls the work and who supplies the equipment; the label on the contract does not decide it.

The insurer issues a certificate when the policy starts or renews. You must display it where employees can read it, on paper or electronically if staff know where to find it. Since 1 October 2008 there has been no legal duty to keep old certificates, and the Health and Safety Executive advises keeping a full record anyway, because some diseases appear decades after exposure and the claim goes back to the employer of the time.

The insurer cannot refuse to pay an employee's claim just because you failed to report the incident or keep records. It pays, and the policy can let it recover the cost from you if your failure to meet health and safety duties led to the claim.

Motor insurance is compulsory under section 143 of the Road Traffic Act 1988 for any vehicle used on a road or other public place. A car or van used for work needs a policy that covers business use; a policy limited to social use leaves the business journey uncovered.

Employers' liability in figures

£5 millionminimum employers' liability cover, including costs

£2,500maximum fine for each day without suitable cover

£1,000maximum fine for not displaying the certificate or refusing to show it to an inspector

Source: Health and Safety Executive, Employers' Liability (Compulsory Insurance) Act 1969, a brief guide for employers

Other covers a business can buy

Public liability: Claims from customers, visitors and members of the public who are injured, or whose property is damaged, through your business. It is voluntary in law, and some clients, landlords and venues require it in their contracts.
Product liability: Claims for injury or damage caused by a product you make, supply or repair.
Professional indemnity: Claims that your advice, design or service caused a client a financial loss. Policies are written on a claims-made basis, so the policy in force when the claim arrives responds, and run-off cover may be needed after the business stops. Some regulators make it a condition of practice, such as the Solicitors Regulation Authority for solicitors' firms.
Property and contents: Buildings, fixtures, stock, equipment and tools, against fire, flood, theft and other insured events, up to a sum insured you declare.
Business interruption: Lost gross profit and extra costs after insured damage stops or slows trading, for an indemnity period you choose. Set the period to the time the business would need to rebuild and win back its customers.
Cyber: Costs after a data breach or an attack on your systems: investigating and restoring systems, notifying the people affected, and claims from third parties.
Directors' and officers' liability: Claims against directors personally for decisions made in running the company, and the legal costs of defending them.

To quote, Swoop's insurance team asks for the business address, trade, turnover and structure, and it can combine several covers in one policy with one renewal date.

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Telling the insurer what matters

Before a business policy starts or renews, the Insurance Act 2015 places a duty of fair presentation on the business. You must disclose every material circumstance you know or ought to know, or give the insurer enough information to prompt it to ask. A circumstance is material if it would influence the insurer's decision to offer cover or on what terms: past claims, the work you do, the security at the premises, the value of what you insure.

If you fall short and the failure was neither deliberate nor reckless, the remedy depends on what the insurer would have done with the full facts. If it would have refused cover, it can avoid the policy and return the premiums. If it would have imposed other terms, the policy is treated as if those terms applied. If it would have charged more, it pays a proportion of the claim: the premium charged divided by the premium it would have charged. A deliberate or reckless failure lets the insurer avoid the policy and keep the premiums.

Eligible small businesses can take an unresolved insurance complaint to the Financial Ombudsman Service: those with turnover under £6.5 million and either fewer than 50 employees or a balance sheet under £5 million.

Underinsurance and the average clause

Illustrative example

A policy with an average clause scales a claim down when the sum insured is below the full value of the property, partial losses included. Here the rebuild cost of the premises has risen to £500,000, the sum insured is still £350,000, and a fire causes £120,000 of damage.

Full rebuild cost: £500,000
Sum insured: £350,000
Proportion insured, £350,000 ÷ £500,000: 70%
Damage claimed: £120,000
Shortfall the business bears: £36,000
Insurer pays, before any excess: £84,000

The cut applies even though the damage was well within the sum insured. Rebuild cost differs from the market value of the building: get a rebuild valuation, raise the sum insured when you extend, refit or buy equipment, and include professional fees and demolition. Set stock cover at the level the business holds in its busiest season.

Cover for the people who own the business

Key person cover

Pays the company a sum if someone the business depends on dies or falls seriously ill, to replace lost profit or repay borrowing. See business protection.

Shareholder protection

Gives the remaining shareholders the money to buy a deceased or seriously ill shareholder's shares, under an agreement that sets out how the sale works. Also covered under business protection.

Relevant life cover

Life cover for a director or employee, paid for by the company. See what a relevant life policy is.

These policies are personal protection, and the firm's regulated advisers give advice on them.

Questions people ask

What business insurance is a legal requirement in the UK?

Employers' liability insurance of at least £5 million, from an authorised insurer, if you employ staff, with narrow exemptions. Motor insurance for any vehicle used on a road or other public place, covering business use where the vehicle is used for work. Some professions also need professional indemnity cover as a condition of their regulator, such as solicitors' firms under the Solicitors Regulation Authority. Other covers are a choice.

Do I need employers' liability insurance if I am the only employee of my company?

Not if you own 50% or more of the company's issued shares and you are its only employee: that company is exempt under the 1969 Act. The exemption ends as soon as the company employs anyone else, including part-time staff. A family business is exempt only if all employees are close relatives and it is not a limited company.

What is the average clause in business insurance?

A condition that reduces a claim in proportion to underinsurance. If property worth £500,000 to rebuild is insured for £350,000, the business is insured for 70% of its value, so a £120,000 claim is paid at 70%: £84,000 before any excess. It applies to partial losses as well as total ones, so keep sums insured at full rebuild or replacement value.

What is the difference between public liability and employers' liability insurance?

Employers' liability covers claims from your employees for injury or illness caused by their work, and it is compulsory for employers in Great Britain, with narrow exemptions. Public liability covers claims from customers, visitors and other members of the public injured or whose property is damaged through your business. It is voluntary in law, though clients and landlords may require it.

Do I need professional indemnity insurance?

If clients rely on your advice, designs or professional services, a mistake can cost them money and lead to a claim, and professional indemnity insurance pays that claim and the legal costs. Some regulators require it, such as the Solicitors Regulation Authority. Policies are claims-made, so keep cover running, or buy run-off cover, after you stop taking on work.

What happens if I did not tell my insurer something?

Under the Insurance Act 2015 the remedy depends on what the insurer would have done. If it would have refused cover, it can avoid the policy and return the premiums. If it would have charged more, it pays a proportion of the claim. A deliberate or reckless failure lets it avoid the policy and keep the premiums. Tell the insurer as soon as you realise.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

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Business insurance

Insurance the law requires

Employers' liability in figures

Other covers a business can buy

Telling the insurer what matters

Underinsurance and the average clause

Cover for the people who own the business

Key person cover

Shareholder protection

Relevant life cover

Questions people ask

Business savings

Business savings

Business energy

Business bank accounts

Business credit cards

Business insurance

Insurance the law requires

Employers' liability in figures

Other covers a business can buy

Telling the insurer what matters

Underinsurance and the average clause

Cover for the people who own the business

Key person cover

Shareholder protection

Relevant life cover

Questions people ask

Business savings

Business savings

Business energy

Business bank accounts

Business credit cards

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