UnderinsuranceSmall and medium sized businesses need commercial insurance to cover their premises, contents, machinery and equipment. If you are sourcing your business insurance online and your only consideration is to minimise the cost of the premium, you may find that your insurance cover leaves you out of pocket if you need to make a claim.

Underinsurance is a common problem. 40% of businesses do not have enough business interruption cover to get them back on their feet (Building Cost Information Service 2012).

Rebuilding costs
The sum insured should take account of the actual rebuilding costs, not the market value. Depending on the type of property, reinstating the building back to a useable position following an incident may cost more than you think once you include materials, labour and professional fees, not to mention loss of earnings during the rebuilding period. In 25% of SME claims reviewed by the FCA, the indemnity period expired before they returned to a normal trading position (FCA thematic review of SME claims TR15/6 2015).

Business interruption insurance
The consequences of an insured incident could result in reduced or complete loss of income from your business for an unknown period. It is therefore important to check how long the indemnity period is on your insurance policy. Two years is likely to be needed for a business to fully recover to its original trading level.
These calculations can be complicated, considering all of the eventualities that could delay getting your business back up and running; for example, delays in planning permissions when rebuilding, long lead times for replacing stock or machinery and replacing customers lost due to downtime.

This is where a broker can offer their expert advice. Depending on your business circumstances they may suggest a declaration-linked, non-average basis of insurance, because it provides an uplift of 33% providing that the sum insured is correct initially and declarations are made when requested by insurers. Alternatively, a policy that is based on the estimated amount of gross-profit or revenue that you expect to earn.

Legal liability claim
Claims against your business can come from a variety of risks and insurance is designed to provide adequate levels of cover of usually £5 to £10 million. The types of cover to consider include:

  • Employers liability
  • Public and products liability
  • Directors and officers liability
  • Cyber threats
  • Environmental liability
  • Professional indemnity

You will have to assess the risk levels within your own business to determine whether the level of cover is going to be enough for your individual circumstances.

Benefits of using an insurance broker
Insurance is complex and it is not easy to assess all of the risks associated with your business and to select the most suitable insurance policy to meet your needs. Get it wrong and you could jeopardise the future of your business.

An insurance broker will be able to offer advice and select the most suitable policy for your business. They can arrange accurate valuations to ensure you have exactly the right amount of cover in place when you need it.