Posted: Fri 26th Aug 2022
Insurance is a crucially important part of running a business and a potentially tricky one to get your head around.
Fortunately, legal expert and adviser on Enterprise Nation Michael Buckworth takes a look at the key considerations every entrepreneur should be aware of.
You can manage risks in your contracts or agreements with your customers and suppliers by adding tailored provisions that exclude or limit your liability if something goes wrong.
If you do not have an agreement in place with your customers or suppliers, you have unlimited liability for any losses they suffer or cause to you.
Having well-drafted and robust agreements in place provides you with the best protection against claims and will reduce the cost of your insurance overall.
There are all sorts of tailored insurance covering a multitude of weird and wonderful risks, but only get those that are relevant to you, making sure it is specific to your business' needs.
For example, Professional Indemnity Insurance covers losses caused by your negligent advice, so is probably not relevant for a food-based start-up – however, Public Liability Insurance, which covers death and personal injury suffered by customers, suppliers and visitors to your premises may be useful if you have a brick-and-mortar shop.
Insurance policies often contain exclusions (i.e. things that are not covered by the policy). Some of these are obvious – you are not covered for your own fraud or if you break the law – but others can be problematic and well-hidden.
For example, if you have your watch stolen on holiday, you will not be covered by insurance unless you file a police report and get a crime reference number.
Always read the policy to ensure that you understand any exclusions.
When you set up your start-up, you will likely get entry-level insurance and exclude all your liability in your customer agreements.
However, as your business grows, and you work with bigger clients, they may ask that you agree to be liable for certain types of loss – if you agree to this you should be capping your liability.
Your insurance must cover you for any claims that could be brought within the cap, you must also make sure that you are covered if you suffer multiple claims as insurers can impose a maximum cap for all claims on a policy.
If a supplier makes a mistake that causes a client to sue you, it will be your insurer that pays out and your premiums affected.
To prevent this, you will want to ensure that your supplier has insurance in place. You should also consider including an indemnity in the agreement with your suppliers giving you direct recourse against them (and by extension their insurer) if certain things go wrong.
It is far better to be able to claim against someone else’s insurer than against your own.