Beware sharks:Insurance

Phil Jackson is an advisor at design and education consultants Taylor Merricks Associates

Setting up any business involves a degree of risk. Where your business involves the manufacture of design-led products or concepts, the risks are even greater because sales may be subject to consumer tastes and preferences. Such businesses must reduce risk by thoughtful managerial judgement, the operation of strict financial control and the expedient use of good insurance cover. Accidents and other unexpected events will probably occur and protection is essential.

Regrettably, insurance premiums will be yet another drain on your revenue. However, there are many insurance brokers not committed to one company’s products and who will compete for your business. It pays to shop around and talk to three or four brokers before making your choice. This is time-consuming but insurance arrangements usually last for many years with only minor changes. When making initial contact ask the broker if he or she deals regularly with small businesses. Also make sure the broker is a member of the Insurance Brokers Registration Council, so that you will be protected if he or she is negligent. If you don’t know where to start, contact the British Insurance and Investment Brokers’ Association in London for a list of appropriate firms in your locality.

Many brokers offer standard cover which may be described as “all risk”, though your business may require some supplementary cover. Such packages can be cost-effective but they should not be a means of buying services that you don’t fully understand, or, worse still, buying levels of cover you don’t really need.

Don’t neglect your homework. Begin by listing the risks involved in your business. The broker will probably think of some more, but at least you will have a basis for discussion. A good starting point is to read up on it – Croner’s Reference Book for the Self Employed and Smaller Business has an informative insurance section. You will end up with a list of contingencies against which you might (and probably can) insure, but you’ll then have to exercise judgement.

Some insurance will be required by law – most notably Employer’s Liability and motor insurance. Other forms might be needed as part of the terms of contract. For example, leased equipment or that which is being bought on hire purchase is not legally your property and may have to be insured. The main kinds of insurance cover to be considered are:

Employers liability: Required even if the business has a single part-time employee. Cover will usually be up to 10m for employees injured or made ill at work.

Public liability: This covers you for injury to members of the public on or near your premises, or when you are delivering or installing products. It’s difficult to conceive of a business situation when such insurance would not be necessary.

Product liability: This covers you for claims arising from faults in your product.

Insurance of premises and contents: Absolutely essential. Inform your insurers if you are working from home.

Insurance of stock, work-in-progress, and goods-in-transit: These are essential insurances and can be encompassed in a single material damage insurance.

Equipment insurance: Insurance against failure is essential where equipment use is central to your production process. Where equipment has to be tested annually for safety, this can be undertaken by your insurers.

Beyond this basic selection there are a whole host of other types of cover available, including loss of cash, credit insurance (against bad debtors), computer record loss and professional indemnity insurance. You need to judge what your business needs.

Whatever types of insurance you decide to use, you should fill out the proposal carefully. The principle of Utmost Good Faith governs such documents, which means that all relevant information is expected to be included, even if the form doesn’t ask for it explicitly. Also inform your insurers if your business expands or changes in some material way. Omissions could seriously compromise any claims. And study the policy carefully; you should know exactly what you have paid for.

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