Everything You Need to Know About Business Insurance for Your Company

There is so much to consider when setting up a new business in the UK, including to ensure you have enough insurance. Whether your business is small, medium or large, several types of business insurance are available to provide protection from potential risks. 

By putting in place insurance to meet the needs of your business you can relax in the knowledge that you are covered from potentially significant losses. In this article we will explain when business insurance is compulsory and the different types of business insurance within the UK.

Is business insurance compulsory?

Under UK law employers must take out employers’ liability insurance (see below for more details). No other forms of business insurance are legally required. 

In some cases you may be required to hold certain insurance policies by your trade organisation or another governing body. This may apply to tradespeople such as painters & decorators, plumbers, electricians and builders. 

You may also need certain business insurance if you have a contract that requires it. For example, if your business is contracted by a larger organisation, the contract may require you to have professional liability insurance.

While only employers’ liability insurance is mandatory, it is extremely important to review all of the types of business insurance available and how each may offer much-needed protection.

Why is business insurance so important?

Even small claims against your business can lead to significant costs and reputational damage. While it may be tempting to take the risk and save money, this may place your business at risk should the unforeseen occur. Even if you have assessed that a certain type of business insurance is not needed at present, it may be needed in the future. This could apply if you move premises, take on staff, expand into new products and services, start working directly with the public or if a new contract requires insurance.

Employers’ Liability (EL) insurance (Compulsory for employers)

What is it?

Employers’ liability insurance is legally required in accordance with the Employers’ Liability Act 1969. It provides protection should a member of staff be injured or become unwell because of his-or-her job.

What is covered?

EL covers your legal costs and pays compensation in the event of a claim by a member of staff. It also covers the cost of defending any prosecution related to breaches of health and safety law.

Do I need it?

Employers are legally required to have Employers’ Liability (EL) insurance from an authorised insurer providing protection of at least £5 million. This applies from the moment you take on your first employee, whether they are full-time, part-time, a self-employed contractor, temporary, on work experience or on a training scheme. 

If you do not have the necessary insurance in place then you may be fined up to £2,500 for each day that you are uninsured. Employers can also be fined £1,000 for not displaying an employers’ liability insurance certificate or for not making this available for inspection.

It is important to note that you do not need EL if your limited company only has one employee with a shareholding of 50% or more (i.e. you). The rules also state that EL insurance may not be needed for sole traders, businesses without employees or when close family members are employed.

Public liability insurance (not compulsory)

What is it?

Public liability (PL) insurance provides protection in the event of a claim for losses arising from the running of your business.

What does it cover?

PL policies typically provide cover against claims for loss of or damage to property, personal injury and death. In the event of a claim, PL policies generally pay for any legal defence, medical, repair and compensation costs. Public liability claims often arise where a member of the public is injured on business premises or where damage is caused to another person’s property. PL provides assurance to anyone coming into contact with your business, including customers and suppliers, that you have suitable insurance in place.

Do I need it?

Your business will need PL insurance if its running involves contact with the public. Not all businesses will need public liability insurance, but it should be considered if your business:

  • Has its own premises that will be visited by members of the public or customers
  • Is run from home and is visited for professional purposes by the public, or
  • Provides services off-site (e.g. events and activities) involving members of the public

PL is often taken out by retailers, restaurants and cafes, those providing services in customers’ homes (e.g. tradespeople), and businesses providing “pop up” events.

Professional liability insurance (not compulsory)

What is it?

Professional liability (PL) insurance provides protection to professionals (e.g. accountants, lawyers, consultants and architects) if they make a mistake leading to a claim. 

What does it cover?

Professional negligence insurance may cover your business for:

  • Professional negligence or a breach of a duty of care – e.g. if an architect makes a mistake in the design of a building that causes significant cost to a customer
  • Defamation, negligent misstatement or misrepresentation – e.g. if something you say about another person or business causes damage or loss
  • Breach of confidence – e.g. if, during your business activity, you accidentally disclose information provided in confidence without consent

Do I need it?

You may need to take out professional liability insurance if your business provides specialist knowledge and expertise. Professional liability insurance is typically taken out by professionals such as accountants, architects, chartered surveyors, financial advisors, health professionals and lawyers. Depending on your profession, you may be required to take out PL insurance by your professional body or regulator. The body will normally specify the minimum amount of cover required (e.g. law professionals typically require PL cover of at least £2m). 

It is also commonplace to see PL insurance taken out by businesses, consultancies and freelancers providing marketing, PR, and design services.

Commercial building and contents insurance (not compulsory)

What is it?

Contents insurance (also referred to as commercial contents or business assets insurance) provides protection against the loss of or damage to equipment and possessions in the workplace. In the event of loss, contents insurance will ensure that the items can be replaced, allowing your business to continue operating. 

Commercial building insurance provides protection against damage to business premises (e.g. premises owned by the business).

What does it cover?

Contents insurance covers against loss and damage to any equipment used by your business, including:

  • Theft or loss of computer equipment and mobile devices 
  • Loss of stock and contents due to flooding, and
  • Loss of or damage to goods in transit

Commercial building insurance covers the cost of repair to the physical structure of buildings in the event of fire, vandalism, or flood. Cover is typically provided for walls, roofs, floors, foundations and electrical, plumbing and heating/cooling systems.

Do I need it?

You may need contents insurance if you have any type of business-related contents, including stock and equipment (e.g. laptops, mobile phones, tablets and computer equipment). You may also need contents insurance to cover any losses incurred by home and hybrid workers.

Commercial building insurance is important if you own your premises and it may be required by your mortgage provider.

Directors’ and officers’ liability insurance

What is it?

Directors’ and officers’ liability insurance (D&O insurance) protects company directors and officers from the cost of potential claims by other parties relating to alleged wrongful acts. 

What does it cover?

D&O insurance covers potential claims for wrongful acts brought by shareholders, shareholders, investors, employees, regulators or other third parties, including:

  • breaches of trust
  • breaches of duty
  • neglect
  • error
  • misleading statements
  • wrongful trading.

This may include, for example, claims by shareholders for losses and costs associated with HMRC, HSE (Health and Safety Executive) or SFO (Serious Fraud Office) investigations. Cover may be provided for the actions of past, present and future directors and key management staff and personal legal representatives following death, insolvency, or company bankruptcy.

Do I need it?

D&O insurance should be considered if you have a limited company with directors and officers. Without D&O insurance, directors and officers may have no protection if faced with legal action in the future. This may leave them unable to defend themselves against potential legal costs, damages in civil actions, criminal prosecution and disqualification.

Other types of business insurance

A wide range of other business insurance types is also available, including:

  • Cyber liability insurance – provides cover in the event of a cyber-attack (e.g. a data breach, ransomware attack or DDoS attack)
  • Product liability insurance – covers the cost of compensation if a business’s product causes injury, including if your business has a partial role in the design and manufacturing of the product
  • Business interruption insurance – this is one of many types of insurance policies that are geared towards ensuring business continuity (others include equipment breakdown insurance and tool insurance). Business interruption insurance provides continuity of income in the event that a business is disrupted by an unexpected event such as a flood.
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