Five Common Business Insurance Mistakes
More and more insurance companies are now treating business insurance as a commodity which can be easily bought online and as a result many small businesses, especially start-ups, do just that.
Whilst there is nothing wrong as such with the policies being sold online, it needs to be remembered that commercial insurance can be a very complex area. The policy wording can vary greatly from insurer to insurer, and the temptation to base your choice of insurer on price alone can understandably be strong.
Five common business insurance mistakes that I regularly come across when reviewing the insurances of companies that bought their insurance online are:
1 – Getting the Business Description not quite right
Online quote engines usually have a drop down box containing very generic business descriptions. Please be careful to ensure that the description you choose covers ALL of your business activities. Classic problem areas can be web-design (do you offer hosting? Do you build e-commerce sites?), building trades (especially when you are using subcontractors) and marketing companies (do you for example provide direct mailing services?)
Getting the business description wrong could lead to all sorts of problems should you need to rely on your insurance to make a claim. In fact this is such an important area I wrote a separate article about it HERE
2 – Not reading the terms and conditions
Business Insurance policies are made up of warranties and conditions precedent. Failure to comply with them could lead to a claim being turned down or even your entire policy being invalidated. Classic examples include warranties and conditions that expect you to have a required level of security at your premises, or check the insurances of your subcontractors, or have the Electrical Installation at your premises inspected. Please double check that you know exactly what terms your insurers are applying and that you can comply with them
3 – Underinsurance
Most material damage policies include the Average Clause. This clause is designed to discourage under-insurance by adjusting claims by the amount of underinsurance.
For example, you insure your contents with a sum insured of £50,000. The actual replacement value of your contents is in fact £75,000. You suffer a break-in and the claim totals £20,000. Your insurance company will settle the claim as follows:
——————- x amount claimed
Value at risk
In this case
—————— x £20,000 = £13,333
Under-insuring would have cost you £6,667 – a classic business insurance mistake.
4 – Buying purely on price
Do you know how good your insurance company is? Do they have a good security rating? What is their claims service like? How does their wording compare to that of competitors? All are very important considerations and yet are sometimes overlooked.
As an example of how wording can vary immensely from insurer to insurer have a look at this article regarding Professional Indemnity Insurance
5 – Not reviewing
As your business changes so must your insurances. Please make sure that your insurance company are kept aware of any changes in your business such as new products or services being offered, new markets (what are your policy’s territorial limits?), changes in the agreed security at your premises, and (especially if your policy is rated on a per capita basis) changes in the company head-count