Demystifying insurance for SMEs

From the role of advice, to avoiding underinsurance!

Ensuring your business is properly insured and protected can seem a daunting task. Have you got the right cover in place as your business grows? What else should you be considering from an insurance and risk perspective? 

It’s common to have plenty of questions or doubts, particularly if you run a small business or SME that is growing fast and changing on the way.

So, Richard Easterbrook, our Director of Commercial Insurance, has been answering some of those questions. He was talking on the ‘Business Brunch’ show on Oxfordshire’s GET Radio – you can catch up on the full interview on here.

Seek expert advice

First and foremost, Richard emphasises the need to seek advice from an expert. A good broker can help you avoid a laborious search for the right insurance cover and give you peace of mind that your business is protected.

Richard says: “You know your business inside out and may think you know what your potential exposures are. But you will probably miss something. Talk to somebody to understand what your exposures really are and then you can make an informed choice.”

If you’ve never sought advice from an insurance broker before, you may wonder what to expect. Richard says: “We would start by asking you lots of questions about your business. We can’t give you any advice unless we understand what you do, how you do it and how you’re set up. What is it you’re looking to achieve? What risk would you be comfortable with? 

“Once we’ve got an understanding of a business’s needs our job is to go to the insurance market to come up with the best value proposition that meets those needs, providing a recommendation for you,” he adds.

But it’s not a one-off process, as Richard explains: “It’s important to continue talking, rather than considering insurance as a once and done transaction that’s then left on the shelf. We go and see the client and understand if their business is evolving and diversifying; especially at times like this, when the economy is challenging or we see supply chain issues.”

Understand your appetite for risk

When choosing insurance, one of your first considerations should be your business’s appetite for risk. This will affect some of your decisions about what insurance to buy and at what level to set your excess.

Failing to account for your risk appetite can mean your business ends up paying for insurance you don’t need. By way of example, Richard says: “If you’re thinking ‘well actually I wouldn’t mind having a £1,000 loss’, then don’t buy a policy that gives you a £250 excess, as you’re probably buying too much insurance.”

Protect your senior team

It’s important to consider the wide range of exposures that you have got as a business. If things go wrong, senior team members can have claims made against them.

Richard says: “One of the biggest mistakes that we see is clients failing to protect their personal liabilities as a director of the business.”

This is an area where an expert adviser can really help you to understand exposures, and how to find valuable and affordable cover for those risks. 

A common solution is Directors’ and Officers’ (D&O) insurance or Management Liability insurance, which can help protect individuals against financial costs.

Work out your must-have insurances 

What insurance is truly essential for your business? As a starting point, Richard says it can help to break them down into legal requirements, contractual requirements, emerging risks and needs based on your appetite for risk.

  1. Legal requirements: businesses are required by law to insure vehicles (business car or commercial vehicle insurance) and to put in place Employers’ Liability Insurance, which covers the costs of employee claims for illness or injury as a result of their employers’ negligence.
  • Contractual requirements: a client contract may stipulate that you have to have certain covers in place. 
  • Needs based on your appetite for risk: you are likely to have a potentially lower risk appetite when it comes to third parties – including customers, suppliers or members of the public – making the need for cover more urgent.
  • Emerging risks: for example, cyber exposures; as businesses increasingly rely on technology, the risk of losing money and data, or technology being denied or failing, has never been greater.  

Your broker will help you understand each of these areas and which insurance cover is right for you. Common cover you may need in addition can include:

Avoid the pitfall of underinsurance

Businesses can easily end up at risk of becoming underinsured. This is when you have insurance policies in place, but the cover isn’t sufficient for your needs, and is a particular risk when inflation is high and the costs of raw materials are increasing. 

There can be several reasons for being underinsured. For example, there may be confusion around the definition of profit used in Business Interruption policies, which is different from that used in standard accounting. Or it may be related to how you value your premises, machinery or stock. It is worth ensuring that all your assets and properties are valued correctly – and updated regularly – and you have the correct levels of cover in place. 

Richard says: “We’re seeing inflationary pressures and supply chain issues not only mean that the cost of what we’re buying has gone up, but the cost of replacing anything has gone up. So, we see businesses with significant underinsurance.” 

A broker can guide you. Richard adds: “As insurance brokers, we cannot tell a client the value of their assets. But we can explain the relevant factors to make sure they validate the numbers that they’re giving, to ensure that they’re accurate.”

We’re here to help

While insurance can be complex, at Howden we aim to make it as straightforward as possible for you. Our team of specialists can help you with your business insurance needs.

Whether you’re just starting your own business or are long-established, talk to Howden about business insurance today. 

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