Information is an essential resource for all businesses today and is the key to growth and success. However, companies have to ensure that the information held on their IT systems is secure. 

Insurance: covering all bases

by Robert Munro

Reviewing your business insurance may not seem a priority when most SMEs' eyes are firmly fixed on their bottom line, but in difficult trading conditions, having adequate and appropriate cover is more important than ever. Of course, it is tempting to have the minimum insurance required by law but this can be a false economy as customers become less willing to pay and employment issues trigger legal disputes.

"The danger is that people will review their insurance and take some short cuts. Then the cheap insurance quote becomes an expensive quote. Insurance is only as good as the claims it pays," said Mike Askew, managing director of CBG Group, an AIM-listed insurance company.
But it is not all doom and gloom. According to Askew, this is a great time to review insurance options. There has never been a better time to review your insurance rates. There are rewards out there for SMEs as we are going through a very soft cycle," he said.

But he adds that it is advisable to act quickly to secure a new deal as the situation is unlikely to last because insurance claims tend to increase during a recession. "Companies do not feel like absorbing a loss so there are more claims and rates tend to creep up," he said.

And as the recession begins to bite, the risk of costly claims increases with the risk of employment and legal disputes. 

Economic impact

According to ABC Insurance, there has been a sharp increase in calls from policyholders to its legal helpline, which provides businesses with legal advice. The company reports higher than usual volumes of calls from commercial policyholders seeking guidance.

ABC Insurance head of commercial insurance Mike Crane said: "Judging by the feedback from our helpline lawyers, what we are seeing is a great many businesses preparing themselves to take some tough employment decisions in 2009. Redundancies are clearly on the cards in many sectors and managers need to ensure they get the advice they need to ensure they handle the situation correctly.

Taking into account the economic situation, there is no doubt that brokers should be advising their clients to ensure any commercial insurance they take out includes legal expenses cover so that if they do need legal help they have easy access to qualified legal professionals. With the cost of the average employment tribunal running to around £15,000, relevant insurance cover is a must for any business. Today, even something as simple as getting employment advice from a lawyer will cost upwards of £200 an hour. Yet with legal expenses cover, access to an expert helpline staffed by lawyers is free. As no SME manager can be expected to keep abreast of the minutiae of UK employment and debt legislation, good quality, expert advice is a must-have business survival tool."

Even minor damage to your property could seriously disrupt your business leading to loss of income and extra expenses. A typical act of vandalism costs £2,1While the vast majority of legal expenses claims from SMEs relate to employment law, ABC is also expecting a surge in enquiries about non-payment of invoices due to contractual disputes, plus how to get debts paid by companies that have, or are about to, go out of business.

Brokers

The majority of business insurance is sold through brokers, although there are online options for smaller businesses. Askew advises going through a broker to get the best insurance deal. "The broker is standing by what he has put in front of you. Bespoke policies are required to ensure adequate cover, particularly if any elements of your business are unusual or unique," he said.

He also advises going for a long term agreement covering up to three years as this will ensure the broker gives you the best quote. "There is then an appetite to win your business," said Askew.

Although brokers may be the best route for ensuring adequate cover, a number of online comparison sites are involved in the business insurance market, while major insurance players like MoreThan and Norwich Union sell packages for small business online. However, business insurance is complex and buying online is not always the best option.

The FSA is currently reviewing the terms and conditions for pricing on online comparison websites. The British Insurance Brokers' Association (BIBA) welcomed the move and chief executive Eric Galbraith said: "The FSA has acknowledged that consumers should compare insurance cover and not just focus on price alone. Insurance is complex and a broker is able to advise on the most suitable policy and not just the cheapest which may be unsuitable."

Gocompare.com offers an online quote service for SMEs through its tie-in with iprism. Buyers can click from the Gocompare.com home page to a white-labelled version of the iprism site. This provides quotes from ten commercial insurers for standard commercial risks, in minutes.

Business crime

Business crime is growing and the latest AXA Insurance statistics on business crime show a 10 per cent increase in the number of crimes committed against British businesses in the first half of 2008, and an 18 per cent increase in the cost of business crimes in the same period. These increases run counter to the nine per cent reduction in high street and general crime announced by the Home Office over the same period of 2008.

Business crime should not be seen as victimless just because insurance is in place to pick up the cost," said AXA head of customer risk management Doug BarnettAs one of the largest SME insurers in the UK, AXA believes this 18 per cent increase is an indication of the rapidly rising cost of business crime across the country. The average crime claim settlement amount for January to June 2008 was £4,575, an increase of 7.5 per cent over the average cost for the same period last year.

AXA head of customer risk management Doug Barnett said: "The increase in business crime is likely to get worse as the economic downturn continues, particularly where prices for certain goods are increasing. This is especially true of some building materials. If high street crime is falling, as recent government statistics suggest, we believe the police should now increase the emphasis on tackling crimes against UK businesses.

"Business crime should not be seen as victimless just because insurance is in place to pick up the cost. Many business owners regularly worry about the fear of being robbed for their stock or having vital equipment stolen, which could put them out of business for a period of time and, therefore, affect not only their own livelihoods, but the lives of all their employees."

The most common crime against businesses is forcible theft - criminals breaking and entering locked offices, shops, factories and warehouses. This rose by nearly 15 per cent in 2008, with the total cost of this crime increasing by 5.4 per cent to an average of £3,315 per claim.

Malicious damage is another major factor, often involving bricks through windows and damage inside business and retail premises. While the number of these crimes has remained constant, the total cost has increased by more than 55 per cent. A typical act of vandalism against a shop, office or business premise now costs an average of £2,144.

What you need 

Checklist: protecting your business
  
Here are some useful tips from AXA to improve security planning and reduce the risk of crime:

* Doors are the first port of call for any criminal wanting to gain access to your premises. Strengthen doors with steel supports and locks

* Windows are also a magnet for break-ins. Opening sections of windows should be screwed or bolted shut permanently unless they have to open; these sections must be fitted with key-operated locks. Windows can also be protected with steel bars    

* Install an intruder alarm system if the premises are vulnerable or isolated, have suffered previous entries or attempted entries    

* CCTV can be used as part of an integrated security system to help reduce theft and discourage malicious damage or vandalism 

*Arson can wreck any business, so ensure extinguishers, alarms, detectors and sprinkler systems are maintained in working order

www.axa4business.co.uk

Business insurance tends to divide into three main areas:

• Liabilities
• Property and buildings
• Assets and equipment (contents cover)

Liabilities
Once an employee is taken on a company is required by law to take out Employers Liability insurance. The prescribed legal minimum is currently  £10m of cover against bodily injury, illness or disease sustained in the course of employment.

The limit of indemnity is the maximum amount the insurance company will pay when a claim is made. The limits are usually up to £5m but when working for another company, cover of £10m or more can be demanded.

Product liability
Product liability is your legal liability to pay damages consequent upon a defective product being used in the contract.

Businesses that supply products to other businesses or the public, from software to machine tools, are at risk if a faulty product causes damage or injury. Manufacturers of a product are usually at risk if things go wrong, but the liability can fall on a supplier if the maker of the product goes bust.

Unfortunately, we live in litigious times. Businesses can be sued, rightly or wrongly, for vast damages over a range of complaints.

Professional indemnity
Professional indemnity provides protection against any action by clients who believe they received bad or negligent services, and incurred a loss as a result. Most professional bodies have professional indemnity cover - in some cases it is compulsory. Anyone who supplies advice or services such as consultancy should consider professional indemnity.

Property and buildings
Even minor damage to your property could seriously disrupt your business leading to loss of income and extra expenses. Business interruption insurance will compensate for the short-fall in gross profit together with paying any increased working costs and extra accountants' fees incurred.

Goods in transit insurance covers goods against loss or damage while in your vehicle or when sent by carrier.

Buildings and contents can be insured against fire, lightning, explosion of gas and boilers used for domestic purposes without the addition of special perils such as explosion, riot, malicious damage, storm, flood, impact by aircraft, road and rail vehicles, escape of water from tanks or pipes and sprinkler leakage.

All risks
All risks insurance gives wider cover including any accidental damage or loss not specifically excluded. However, all risks will not cover wear and tear, electrical or mechanical breakdown and gradual deterioration, which will be specifically stated in the policy document.

The business premises should be insured for their full rebuilding cost (including professional fees and the cost of site clearance) and not just for their market value. You may need expert advice to calculate the rebuilding cost, which often differs significantly from market value.

Assets and equipment
Your stock should be insured for its cost price without profit. Plant and business equipment can be insured on either a ‘replacement as new' or on an indemnity basis. If indemnity is chosen, wear and tear will be taken into account when settling any claims.

Engineering insurance provides cover against electrical or mechanical breakdown for most machinery, including computers. By law, many items of plant, such as boilers, lifts and lifting machinery must be inspected regularly by a qualified person. Insurers can provide this service.

Contents are usually covered against theft providing there has been forcible and violent entry to or exit from the premises. Damage to the building resulting from theft will normally be covered.

Askew says that one of the most vital aspects of insurance is for business interruption. He said: "It is the most important and the most complex area of cover. For example, indemnity periods for loss of earnings should be at least 24 months."  

Contact file

Association of British Insurers www.abi.org.uk/

British Insurance Brokers Association www.biba.org.uk

Financial Services Authority www.fsa.gov.uk

ABC Insurance www.abcinsurance.co.uk

CBG Group www.cbg-group.co.uk

AXA www.axa-insurance.co.uk/businessinsurance/

More Than Business www.morethanbusiness.com

Gocompare.com www.gocompare.com/business-insurance/

Iprism www.iprism.co.uk