Running your own business not only means generating revenue and cutting costs, but also managing the numerous risks to its sustainability, such as on-site accidents or unforeseen revenue disruption. Insurance helps mitigate these risks, however the various types of insurance covering such a wide range of scenarios make it next to impossible to afford all the premiums at once. Sometimes we need to assume some of the risk, but how do you decide what to cover and what to manage?
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Business Insurance: Do You Need It?
Mandatory Insurance
Some insurance types are compulsory for businesses and operating without them is illegal:
- If you have employees, you’ll need workers’ compensation insurance to protect your staff in the event of an accident or illness
- Just like in civilian life, your business vehicles need third party personal injury insurance
- If your business is one where a member of the public could be injured or their property damaged while you provide a service, then you’ll need public liability insurance
After these insurances, you have a plethora of options to help you deal with the risks of being in business.
Businesses can choose one of three strategies for these risks:
- Accept the risk and its consequences
- Take out insurance to protect yourself
- Manage the risk to reduce or eliminate it
The first option obviously puts your business in danger of catastrophic failure and should be avoided at all costs, and the second is unrealistic for a small business operating with lean costs, as it can’t afford to insure every tiny detail in the organisation. As a result, business owners need to strike a balance between the second and third strategies, insuring against major or likely risks and proactively reducing the probability of others. You need to decide which insurances are most relevant to your business, and which risks you can most easily manage yourself.
Optional Insurance
Asset protection: This insurance covers your work premises, equipment, vehicles and contents from theft, fire, flood and other damage. If you work from home, you’ll need to check if home and contents insurance covers business assets, such as computers and printers. If not, you’ll need a separate policy.
Key person insurance: Losing a key staff member can severely wound a small business, and preventing an employee accepting another job is difficult to manage without throwing hoards of money around. Staff leaving can lower revenue and reduce the value of a business, however key person insurance mitigates this risk.
Product liability: This insurance protects your business from any product you manufacture or market that could cause death or injury. If you’re exporting your items overseas, you’ll also need to investigate international providers.
Professional indemnity: Any professional advice you offer clients might make you liable if things go pear-shaped for them. This insurance protects you against any issue arising from consulting to third parties.
Revenue protection: Business disruption insurance covers you from revenue loss derived from a natural disaster or damage to your computer systems.
There are many other insurance policies available for your business, but you’ll need to identify them and present them to an insurer to find out if they will cover you.
Quality Risk Management
In the event you can’t justify an insurance premium, you can proactively prepare yourself for any future calamity. Even if you’re covered, many policies require you to take appropriate steps to reduce the chance of misfortune, making it worthwhile investing time in risk management.
For example, if your premises is at risk of natural disasters, such as fire or flood, you can attempt to offset that risk with proper maintenance. This includes making a list of areas that need regular inspection, such as drains and gutters to reduce storm damage, or contacting an electrician to inspect your wiring to avoid electrical fires.
Three major risks for small businesses are theft, fraud and data loss. These can be difficult or expensive to insure. You can mitigate theft with background checks on staff, staff training and burglar alarms, but you’ll simply need to exercise constant vigilance and technological know-how to avoid fraud and data loss, respectively.
Start a risk assessment of your business today and decide what needs insurance, what insurance you can afford and how you’ll manage the risk without it. It’s smart to have a contingency plan for everything, because when things go wrong, it’s best to be prepared.
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