Small Businesses Face Crippling Claim Costs

While small business owners may take a calculated risk when starting up their own company, independent research from Premierline Direct shows that SMEs are leaving themselves wide open to potential crippling losses and legal claims amounting to over £3billion, by failing to have the right level of business insurance.

According to Premierline Direct 30% of the business owners questioned in their research don’t have business insurance at all.  This is despite the fact that over half are concerned about the growing ‘blame and claim’ culture.  

Of those that do have business insurance, not all are covered for the essentials.  Only 34 per cent of SMEs have employer’s liability cover, which is compulsory if the company employs anyone, and less than one in six have business interruption cover, which would prove invaluable in helping a business survive an incident that caused loss of income.

While commercial legal protection may be offered as an optional extra to a standard insurance policy, only 17 per cent of entrepreneurs have this cover.  With the average cost of defending an employment tribunal claim estimated to be around £9,0003, it really is an expense that businesses cannot afford to pay out of their own pockets.

Integral to business strategy

Malcolm Tarling from the Association of British Insurers (ABI) says, “small and medium-sized firms make up the backbone of UK plc, and are particularly vulnerable to any unforeseen event, such as a flood, that could financially cripple them. That is why having adequate insurance protection must be an integral part of every business strategy. Without it livelihoods are at risk."

Not only are businesses failing to have the right cover within their policy, but many are putting themselves at further risk by underinsuring their assets.  Only 40 per cent of small businesses have re-valued their business’ assets in the last 12 months so that in the event of making a claim, they could find they won’t receive a payout that will cover the actual replacement cost.

Chris Little, Managing Director of Premierline Direct says: “With more than half of the UK's small businesses collapsing because of cash-flow problems, most small businesses can’t afford to take risks and business insurance is one area a company shouldn’t be operating without.”

Little went on to say that there is a significant gap in the level of cover SME’s have, particularly in key areas such as employer’s liability, public and products liability and business interruption cover.  Without the right level of insurance protection litigious costs brought against a business can unfortunately turn a successful company into one that falls flat.

Advice

Little goes on to say that no matter what size the business, it is important to cover the cost of compensation awarded to someone who becomes injured or has their property damaged arising from negligent activities connected with your business.

Employer’s liability is a legal requirement for any business that hires staff, even if they’re part-time or working cash in hand.  

Public liability will protect you against the cost associated with injury to a member of public or damage caused to their property.  While it is sometimes available under household insurance, this cover will generally only cover events arising in your personal capacity and won’t necessarily go as far as covering your business activities.

Also, your household policy may not provide cover if you have omitted to tell your insurer that you are operating a business from home.

In addition, any business that offers advice to its clients should consider professional indemnity cover, which means that if your advice leads directly to someone suffering a loss, you’re covered for the cost of defending the case and any payout made.

While most professional indemnity policies are designed for big business, there are insurers that provide cover for small businesses that want lower levels of cover, with lower premiums to match.

Also check what extras come as standard in the policy, which can help ensure the smooth running of the business.  For example, a policy that offers automatic cover for situations such as damage to fixed glass and sanitary fittings, loss of money and goods in transit, can prove invaluable when needed.