Insurance 20 September 2016

Key considerations to make before taking out commercial insurance

Having a safety net to fall back on means a business can get back to business as usual as soon as possible and minimise any damage caused to the company.

Insurance expert Lee Mooney shares his advice for small business owners to identify the right kind of commercial insurance for their business.

Insurance is crucial for businesses, whether they’re startups or longstanding companies. No business owner likes to think about suffering any losses as a result of events outside of their control, but these events do happen and it’s paramount that businesses have a safety net to fall back on so that they can get things back to business as usual as soon as possible and minimise any damage caused to the company.

However, simply buying an insurance policy should not be the sole consideration for businesses; it is also important to spend the time to make sure that the insurance they are taking out meets the business’s needs. We’ve therefore compiled a list of considerations that business owners should make before taking out an insurance policy to ensure that they have something to fall back on.

  1. Identify any potential risks

The first step you should take when looking to take out an insurance policy is to identify what you actually need it for. Think about the worst case scenarios for your business and how you can protect yourself from these. Business owners should also ask themselves what their most valuable assets are – it could be intellectual property, or physical assets such as machinery or property. What is the most important element needed for your business to operate and what would happen if it disappeared?

  1. Make sure the sum insured is sufficient enough

This is one of, if not the most important thing to check when weighing up which insurance policy you’re going to take out, as it will largely determine how much money you will receive in the event of a claim.

The sum insured is the maximum amount your insurer will pay out in the event of a claim. If the sum insured does not cover the total value of what you are insuring then you will lose out. For example, if you have a factory that would cost £200,000 to rebuild but only take out an insurance policy with £100,000 as the sum insured, you will only be covered for half of any losses. Therefore, if you were to make a claim for £20,000 worth of damage to the property, your insurance provider would only pay out £10,000.

  1. Check the terms and conditions

Insurance policies don’t cover everything, so it is crucial to make sure that it does cover against the risks that your business may face so that you can rely on it to pay out if you make a claim. There may also be certain requirements that you will have to meet to ensure that the policy remains valid, so it is worth making sure that you fully understand the terms of the policy.

  1. Speak to a broker

It is also worth having a full and open conversation with your broker before picking an insurance policy to ensure all aspects of the business are considered when taking out the appropriate policy/policies. You broker may spot additional risks that you may not have been aware of, and they also have access to a wide range of products and can advise you on which deal would best suit your circumstances. If you are interested in speaking with a broker, you can find one in your area by using the search function on the British Insurance Brokers’ Association’s website.

  1. Shop around for the best deal

The cheapest policies tend to have the least cover, but once you’ve established your business’s needs, it is worth checking with different providers to see who will offer you the most cost-effective insurance policy. You could do this by using price comparison websites, or by speaking with a broker. Brokers usually have access to a range of deals that wouldn’t be available if you went to the provider directly, so speaking to a broker could be worth your while in the long run.

  1. Regularly review your insurance policy

Insurance is not a click and forget purchase. As your business changes and grows, so must your insurance policy. If you don’t regularly review your insurance policy to ensure that it still meets your business’s requirements, your business may end up outgrowing your insurance policy, leaving you with a product that potentially won’t fully reimburse you for any losses.

Insurance should therefore not just be treated as box ticking exercise. Not taking out the right insurance policy for your business will potentially leave you in financial difficulty further down the line if you do have to make a claim. For example, you may discover that the amount you’re insured for is not sufficient, or that what you are claiming for is not covered by your insurance policy at all. Business owners must make sure that they have identified all the risks and are protected against them to strengthen their company’s longevity.

Lee Mooney is director of regions & SME, North UK at RSA, one of the world’s leading multinational insurance groups.

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