Small Business Insurance: A comprehensive guide
19th December 2023
What is small business insurance?
Small business insurance is a broad term that encompasses various types of coverage designed to protect small business owners from a wide range of risks. These risks can include property damage, legal liabilities, employee-related risks, and more. This insurance is crucial for safeguarding a business against unforeseen financial losses and ensuring its long-term viability.
Why do we need small business insurance?
For small businesses, unexpected events can have a significant financial impact. A legal action, natural disaster, or accident in the workplace, can result in substantial costs that any small business could bear without indemnity insurance. Coverage not only provides financial protection and business continuity, but also peace of mind, allowing business owners to focus on growth and operations.
For small business owners, navigating the world of insurance can seem daunting. Insurance is a critical aspect of running a successful business, protecting it from unforeseen risks and liabilities. Having the right insurance in place is important for sustainability and growth.
Small business insurance can offer protection from a wide range of financial risks. These can include property damage, bodily injury, legal liabilities, financial loss, cyber-attacks, and employee-related risks. Certificates of insurance are commonly requested under contract with new clients before engaging to demonstrate your credibility and safety net should something go wrong.
Types of small business insurance
Navigating the insurance landscape as a small business owner can be complex, but it's an essential part of safeguarding your company. Understanding the different types of insurance available and determining what is necessary for your business is crucial.
Remember, this is a general guide and should be adapted to fit your specific business needs and local regulations. For specific advice, it's always best to consult with an FCA authorised insurance broker about your individual requirements.
Public Liability Insurance: This is one of the most critical types of insurance for small businesses. It covers legal costs and compensation claims if your business is held responsible for injury to a person or damage to their property. Whether you own a shop, run a café, or provide a service, public liability insurance is a must to protect against the unforeseen.
Employers’ Liability Insurance: If your business employs staff, even on a part-time or temporary basis, employers' liability insurance is legally required in the UK. It protects your business if an employee gets injured or becomes ill because of the work they do for you. The minimum legal requirement is £5 million, and failure to have this insurance can result in hefty fines.
Professional Indemnity Insurance: If your business offers advice, consultancy, or professional services, or handles client data and intellectual property, professional indemnity is essential. It can cover the cost of compensating clients for loss or damage resulting from negligent services or advice provided.
Cyber Insurance: In an increasingly digital world, protecting against cyber risks is vital. Cyber liability insurance can cover the costs associated with data breaches and cyber attacks, including legal fees, compensation payments, and repairing damage.
Directors’ and Officers Insurance: If your business is a limited company, this insurance protects the personal assets of directors and officers in case they are sued for wrongful acts while managing the company.
Product Liability Insurance: If your business designs, manufactures, or supplies products, product liability insurance is crucial. It protects against claims of personal injury or property damage caused by products your business sold or supplied.
Business Interruption Insurance: This type of insurance policy can be a lifesaver in the event that your business operation is interrupted, for example, by fire or flood damage. It covers lost income and additional costs incurred while your business is out of action, helping you to keep paying expenses like rent or wages until you’re back on your feet.
Property Insurance: Whether you own or rent your business premises, property insurance is important. It covers the building and its contents against risks like fire, theft, and flood. If you work from home, don't assume your home insurance will cover your business assets – check and upgrade your policy if necessary.
Vehicle Insurance: If your business uses vehicles, commercial vehicle insurance is required by law. Even if you’re using your personal car for business activities, make sure it’s covered for business use.
Personal Accident Insurance: This is beneficial if you or your employees are injured or become seriously ill and can’t work. It can help replace lost income or cover medical costs.
How much does small business insurance cost?
Understanding the cost of small business insurance is crucial for budgeting and financial planning. However, determining the exact cost can be challenging as it varies significantly depending on several factors. Here's a breakdown of what influences the cost of business insurance and what you can expect.
Type of business: The nature of your business plays a pivotal role in determining insurance costs. A high-risk business like construction will have higher premiums than a low-risk business like a consultancy. The specific activities your business undertakes, the size of your operations, and the environment in which you operate are all considered.
Size of your business: The number of employees you have and your annual turnover are key factors. Generally, the larger your business, the higher the insurance cost. This is because larger businesses typically have more assets, employees, and potentially more significant liabilities.
Type of insurance required: Different types of insurance have different costs. For instance, professional indemnity insurance for a financial advisor will be priced differently than public liability insurance for a retail store. The more comprehensive the coverage, the higher the premium.
Level of coverage: The amount of coverage you choose will directly affect the cost of your insurance. Higher coverage limits provide more protection but also come with higher premiums. It’s important to strike a balance between having adequate coverage and managing costs
Location: Where your business is located can impact insurance costs. Areas with higher crime rates, flood risks, or other geographical risks might see higher premiums.
Claims history: If your business has a history of making insurance claims, insurers may view it as higher risk, leading to increased premiums. Conversely, a clean claims history might qualify you for lower rates.
Risk management measures: Implementing risk management measures can lower your insurance costs. For example, installing a security system might reduce the cost of property insurance.
Payment options: How you choose to pay your premiums can affect the overall cost. Annual payments typically work out cheaper than monthly payments, as some insurers charge extra for the convenience of spreading the cost.
Small business average insurance costs
While it's challenging to provide specific figures without knowing the details of a particular business, here are some average cost ranges for common types of small business insurance in the UK:
Public Liability Insurance: Generally ranges from £60 to £500 per year, depending on coverage levels and business risk.
Professional Indemnity Insurance: For small businesses, premiums can range from £100 to over £1,000 annually.
Employers’ Liability Insurance: The legal minimum cover is £5 million but £10 million is nearly always provided, and costs typically start around £80 per year - but can increase based on the number of employees and risk factors.
Property Insurance: Depends heavily on the value of your property and contents, but small businesses might pay between £200 and £800 per year.
Small business industry specific insurance
Each industry comes with its own set of risks. For example, a restaurant faces risks like kitchen fires and food poisoning incidents, while a construction company deals with hazards like on-site injuries and equipment damage. Recognising these specific risks is the first step in understanding why tailored business insurance is crucial.
Manufacturing and Wharehouses: Commercial combined insurance often combines public liability, employer’s liability, and property insurance, with added coverage for risks like equipment breakdown and engineering inspection.
Professional Services Insurance: For businesses providing services like consulting, legal advice, or accounting, professional indemnity insurance is key. It protects against claims of professional negligence or inadequate service.
Construction and Contractors Insurance: This type of insurance typically includes public liability, employer’s liability, and coverage for tools, equipment, and ongoing work. It may also include contract works insurance, which covers construction projects in progress.
Technology and IT Insurance: Tailored for businesses in the tech sector, this insurance often includes professional indemnity, cyber liability, and intellectual property insurance.
Healthcare Professional Insurance: For medical and health-related professions, this insurance usually combines professional indemnity with public liability and can include specialised coverages like medical malpractice.
Retail Insurance: Designed for businesses that sell goods directly to customers, retail insurance typically includes public liability, product liability, and property insurance. It can also cover risks like shoplifting, employee dishonesty, and business interruption.
Considerations when choosing small business insurance
Understand your risks: Evaluate the specific risks associated with your business type and industry.
Seek expert advice: Consult with insurance brokers or agents who specialise in your industry. They can provide insights into what coverages are essential.
Compare policies: Don’t settle for the first quote you receive. Compare policies from different insurers to find the best fit for your needs.
Review regularly: As your business evolves, so do your insurance needs. Regularly review and adjust your coverage to ensure it remains relevant.
Read about risk management process
Compare business insurance quotes
About the author
Simon Taylor is a respected senior industry professional and a Chartered Insurance Broker with over 20 years’ of experience in the commercial insurance sector as an underwriter, broker and director.