What is the purpose of commercial insurance?

Starting a business is a lifelong dream for many people. However, running a business is challenging at the best of times and there are many pitfalls that even the slickest run companies can fall into. …

Starting a business is a lifelong dream for many people. However, running a business is challenging at the best of times and there are many pitfalls that even the slickest run companies can fall into.

While the coronavirus pandemic saw the closure of many businesses, big and small, the period during the 2020/2021 lockdowns also saw the emergence of record numbers of new businesses. It would seem as if the support of furlough and the drastic change in many people’s working circumstances brought out the entrepreneurial spirit in the nation.

So, with businesses both opening and closing at a fast rate, what insurance options are there to cover them against significant losses or to protect them against any unpredictable future issues that they may come to face?

We are going to take a look at commercial insurance, what it does, who it’s for, and how A-Plan can help you to find the perfect cover for your business.

What is commercial insurance?

Commercial insurance, sometimes known as business insurance, is a general term for a number of different types of insurance that are designed to protect businesses, customers, employees and employers.

Depending on the type of business, most commercial insurance is optional, though highly recommended. However, some types of commercial insurance are required by law, such as employer’s liability cover which is a legal requirement for any business that employs staff.

What is the purpose of commercial insurance?

Whether you’re a self-employed freelancer, a small business owner, or are the CEO of a large multinational corporation, commercial insurance can help to save you money from any unexpected costs.

Self-employed workers or sole traders are often financially vulnerable, as they have little protection against any financial losses they may experience through being ill or unable to work. Commercial insurance can protect the self-employed against any such issues and provide them with income replacement, illness cover or medical insurance.

Businesses that employ staff are legally required to have employers’ liability insurance and businesses that use vehicles must have commercial motor insurance. Besides these two, most other commercial insurance is not legally mandated. However, there may be rules specific to a particular industry, so it is best to check for any particular line of work.

There are other non-compulsory commercial insurance covers that businesses are recommended to get, such as property cover, product liability insurance, and business interruption insurance. However, the exact cover that is needed varies from business to business.

What are the different types of commercial insurance?

There are many different types of commercial insurance policies. The types of commercial insurance you opt for will depend on the type of business you run. Let’s look at these in detail:

Employers’ liability insurance

Employers’ liability insurance covers you and your business for compensation costs if an employee becomes ill or injured as a result of the work they do for you.

As we saw earlier, employers’ liability insurance is a legal requirement for any business that employs staff. This is true for all businesses, no matter how few staff they employ or how rarely they use temporary or casual staff.

An employers’ liability certificate must also be displayed so that it is visible for all employees to see. This can either be a hard copy or electronic, but in either case, it is legally required that employees know where it is and have seen it upon gaining employment.

Public liability insurance

Public liability insurance covers you for claims made against you by a member of the public who is injured or has their property damaged as a result of the operation of your business.

Public liability insurance is not a legal requirement, but it is highly advisable and most large and small business owners who come face to face with the public choose to buy it.

Commercial motor insurance

If your business requires the use of motor vehicles, then it is required by law that you have commercial motor insurance. If you or your employees drive company vehicles, then it is the responsibility of you – the business owner – to purchase commercial motor insurance for every vehicle.

If your employees use their own vehicles for purposes relating to your business, then you are required to ensure that they have the minimum insurance required by law. However, if they use their own cars, you are not obliged to pay for their insurance.

Product liability insurance

Product liability insurance covers the cost of compensation if someone is injured or taken ill due to a product that your business sold.

Professional indemnity insurance

Professional indemnity insurance is designed to protect business owners, freelancers and sole traders if a client claims that a service they have provided is inadequate. Any business or sole trader is liable to be sued if a client is unhappy with their work and professional indemnity insurance protects against this.

Business interruption insurance

Business interruption insurance covers your business against loss of income during periods in which carrying out business as usual is not possible due to an unpredictable event.

The business interruption may be due to damage caused by fire, storm or flooding; the breakdown of equipment; weather or accidents preventing people from being able to get into your premises; or damage or severe delay occurring at the premises of a supplier.

Commercial property insurance

There are two types of commercial property insurance: buildings insurance and contents insurance. Buildings insurance protects the structural elements of your business premises. Contents insurance covers the contents within your business premises. As with home insurance, it is possible to combine the two under one insurance policy and it is usually cheaper to do so rather than to take out two separate policies.

Key person insurance

Key person insurance, (formerly “key man insurance”) covers businesses against any loss that would arise in the event of the death or incapacity of an integral member of the company. Key person insurance is a form of life insurance that is used for business protection purposes.

A key person can be anyone who is crucial to a business’s continued financial success. This might include company directors, specialists, brand ambassadors or managing directors, amongst many other roles.

Credit risk insurance

Credit risk insurance protects a business if a customer or client becomes insolvent. If a customer or client is unable to pay any debts due to financial insolvency, then credit risk insurance provides cover up to a certain amount.

Cyber insurance

Cyber insurance protects businesses and individuals from internet and computing risks. This may include coverage against losses from data destruction, leaking, or hacking.

What type of commercial insurance is right for you?

The commercial insurance policies you choose will depend upon the kind of business you run, where your business is based, and how large an operation your business is. Commercial insurance policies can package different types of cover under one policy. This simplifies your insurance and also can reduce the overall price.

To ensure you get the right cover you should consider:

  • Whether or not your business deals with members of the public. If it does, you should probably opt for public liability insurance.
  • Whether you operate as a sole trader or an employer. If you are a sole trader you may want to get professional indemnity insurance, amongst others. If you are an employer, you are required by law to have employers’ liability insurance.
  • Whether you have business premises. If you have business premises, you likely need commercial property insurance.
  • Whether you use a vehicle for your work. If you do use vehicles for your business, the law states you must have commercial motor insurance.
  • Whether you have stock or work tools and equipment. Again, with stock or equipment, you will likely want commercial property insurance.
  • Whether you offer a product, trade or service. If you do, you will probably want to get product liability insurance.
  • Whether it is likely you will need business interruption insurance. This may be because you live in an area prone to flooding, or because you may be starting a business at an uncertain time (e.g. during the coronavirus pandemic), or for any other reason that is likely to halt your business operation.

If you opt for a single commercial insurance policy that ties together different types of cover, be sure that you are not paying for any cover that is unnecessary for your line of business. By doing this, you could find you save a lot of money each year.

How to save money on commercial insurance

The overall cost of commercial insurance will depend on the type and size of the business you run and the types of commercial insurance you choose to purchase.

However, as with all insurance premiums, there are a number of things you can do to reduce the cost of your commercial insurance. Here, we will take a look at just a few of them:

Keep your premises secure

Most businesses that have an office, venue, shopfront or showroom will opt for commercial property insurance to protect the building and contents against fire, damage, vandalism or theft. Commercial property insurance can be very expensive, especially if the business has more than one location.

If you can show your insurer that you have taken steps to tighten the security of your business premises, you may be able to get cheaper premiums on your commercial property insurance. This could mean installing a shutter, an alarm system, CCTV or even employing security.

Raise your excess

Insurance excess is the amount that you have agreed to pay towards the cost of any claim you make. For example, if a claim cost £1,000 and you have an excess of £200, then you would pay £200 and the insurance company would pay £800. If you raise your voluntary excess, then the overall cost of your premium will go down.

Improve your safety record

Public liability insurance can offer protection up to millions of pounds, but it can often be very expensive. You can get cheaper cover if you show your insurance provider that you take safety seriously and that you follow all the necessary guidelines and practices that minimise the chances of accidents.

Similar to a no-claims bonus for car insurance, if your business goes a significant amount of time without claiming public liability insurance, you will likely see a reduction in the cost of your premiums.

Maintain a healthy business

This is of course easier said than done, but an established and secure business will often be offered lower premiums than a start-up. This is because a start-up will not have proven themselves to be risk averse in any of the domains for which you can get insurance premiums. Once a business has shown it is sensible, safe, and secure, insurers will be more willing to offer them lower premiums.

A-Plan commercial insurance

At A-Plan, we offer flexible combined policies, which we can tailor to your exact requirements. Our specialist commercial insurance team can help you decide which policy is right for your business, no matter how large or small it is.