Life has a habit of leaving out banana skins. Quite literally, in the case of a worker in Rochdale who received more than £4,000 in compensation from the local council after slipping on one.
And spare a thought for the owner of a cycle shop in Bury St Edmonds, which was burnt down in 2017 when two bored employees attempted to cremate the remains of a dead mouse they had found. It caused damage estimated at £1.6m, Ipswich Crown Court heard in May.
Research carried out by Populus for the British Insurance Brokers’ Association, found that nearly one in five small and medium-sized businesses suffered a major incident every year that might have been covered by insurance. The study also found that nearly half of businesses had no plans to deal with the impact of flooding, and a similar percentage had no plans to deal with the impact of a fire on their business.
“The consequences of an unforeseen event or accident can be disastrous,” says Gerry Donnachie, head of underwriting for AXA Business Insurance. “That’s particularly true in the case of very small businesses that aren’t equipped to deal with the impact.”
It can be tempting to put off taking out business insurance. Along with other seemingly dull admin tasks, it can linger at the bottom of your to-do list – weighed down by inertia, ignorance or the complacent attitude that “it won’t happen to us”. Others are put off by the perceived complexity of it – even though sorting out cover isn’t as complicated as you might think.
Part of the problem is that many people don’t appreciate the sheer number of possible hazards that exist in the workplace and their potential fallout – whether from accidental damage, disruption or injury. This is compounded by some business owners believing they are too small or not making enough money to need business insurance.
But the risks have nothing to do with size or profit. According to a 2014 AXA study of 200 small and medium-sized businesses, 24% had received a claim against their employers’ liability insurance (pdf) by an employee or former employee in the past five years. This kind of cover protects owners against the cost of compensation claims arising from employee illness or injury sustained while at work.
The law requires that in almost every case a business employing staff, even temporarily, must have employers’ liability cover. Employers whose staff use company motor vehicles must also have adequate motor insurance, but they often confuse the two.
“Studies show that small businesses don’t always know their legal responsibilities when it comes to insurance,” says Donnachie. “They know they have to insure a car or van but not the staff driving them. So part of our role as an insurer of small businesses is to educate them on what is required by law.”
One difficulty for business owners is that it can be hard to define where an employer’s responsibilities begin and end. Often it’s left to the courts to decide, which is why taking out sufficient insurance is the most prudent approach. In 2011, a worker sued the Forestry Commission after suffering from Lyme disease caused by an infected tick bite, because he was not given adequate protective clothing. A smaller business could equally find itself be subject to such a legal action.
Some professions – such as accountancy and architecture – are now required by their professional body to have professional indemnity insurance to cover possible compensation, legal costs and expenses when defending negligence claims. It’s also worth noting a company can be fined £2,500 for every day it does not have proper employers’ liability insurance.
In addition, although the Financial Conduct Authority is cracking down on false customer claims, compensation claims can be a very real risk. “There is no doubt people are more aware of their rights these days and more likely to seek compensation,” says Donnachie. “Businesses need to be aware of that. At the same time, people have a right to seek compensation if they’ve been injured due to someone else’s negligence, and business insurance can provide much-needed protection against that.”
There are several types of insurance available to suit different types of business. Public and product liability often come packaged together – this pays out if a third party or their property is injured or damaged because of a business’s activity. There has been a spate of incidents in recent years involving customers experiencing allergic reactions where claims are possible against the retailer or outlet, for example. By law, food manufacturers and food service providers must not render food injurious to health, or falsely describe it, and are liable to claims in the event they are proven to have done so. The law also says a business can be held liable for the damage or injury caused by defects in product design or manufacture, even if it hasn’t been negligent.
“Accidents, as they say, do happen,” says Donnachie. “There have been cases where an incorrectly fitted tap in a large office block has caused damage over several floors. A slip causing injury could lead to a compensation claim for thousands of pounds.”
Damage to a building, contents and any stock resulting from a fire or flood can be catastrophic. A burst water main In Islington, London, in 2016 caused a major flood that led to 100 people being evacuated, shops being closed for days and millions of pounds of damage. In that incident, additional cover for business interruption would have provided compensation to those who weren’t able to trade for any length of time.
“People may think they’ll save a bit of money by only insuring the building for fire and flood, but they aren’t considering the potential for loss from the resultant interruption to the business,” says Donnachie. “A business could be knocked out for weeks, even months, and that could signal the end of it.”
The key thing is to take out a policy that reflects the needs of a business by assessing the potential impacts a negative event might have. It’s a small price to pay for a simple admin task that could save you a small fortune down the line. But it’s also important to reassess these needs as a business grows – say, if it adds another premises or chooses to offer other services. For example, a plumber might take on a mate, requiring employers’ liability insurance, or a design agency might invest in new computers, increasing the value of the equipment needing cover.
“We only ever suggest the sort of cover that’s right for a business,” says Donnachie, “but we allow it the opportunity to scale-up as it expands, and it’s really important to do that.”
Whatever your business, don’t keep knocking essential tasks to the bottom of your to-do list.
Tailor your business insurance with AXA. It couldn’t be simpler. That’s one less thing to worry about, and more time to spend getting on with business. Get a quote online today.
