Choosing the right business insurance

Getting the right business insurance means working through your requirements in a logical order. Start with what the law requires, then check what your contracts demand, and finally assess the risks specific to your business.

Working in this order builds up the right level of cover without paying for insurance you do not need.

Identify mandatory insurance

Some insurance is required by law. If any of these apply, you must have cover in place before you start the relevant activity.

Employers' liability (EL)

If you employ anyone, you must have employers' liability insurance with a minimum of £5 million cover. This applies from the day you take on your first employee, including:

• full-time and part-time staff
• temporary and casual workers
• apprentices and interns
• volunteers you direct at work
• labour-only subcontractors

The only exemptions are sole directors with no employees who own 50%+ shares, and unincorporated businesses that only employ close family members. Operating without EL insurance carries a fine of £2,500 per day.

You must display your EL certificate where employees can access it, for example at your workplace, on your website or on your intranet, and show it to inspectors when they ask.

The law has not required you to keep expired certificates since 1 October 2008. The Health and Safety Executive still strongly advises keeping a complete record of your EL insurance, because some work-related diseases appear decades after exposure and a former employee may claim for that period.

Motor insurance

If any vehicle is used for business purposes, your motor insurance must cover business use. Standard social, domestic, and pleasure policies do not cover business driving. This applies to company vehicles, personal vehicles used for work travel (beyond commuting), and delivery vehicles.

Professional indemnity (PI)

PI insurance is legally required for certain regulated professions. Check with your professional body, as requirements vary. Professions where PI is typically mandatory include:

• solicitors and barristers
• architects
• financial advisers (FCA-regulated)
• accountants
• surveyors
• medical professionals

Check contractual requirements

Even where insurance is not legally required, your contracts may make it effectively mandatory. Review these documents before deciding what cover to buy.

Client contracts

Many clients, particularly larger businesses and public sector bodies, require suppliers to hold specific insurance. Common contractual requirements include:

• public liability, typically £1 million to £10 million depending on the client
• professional indemnity, typically £1 million to £5 million for professional services
• proof of employers' liability at the statutory minimum or higher

Check your existing contracts and any tender documents. You may lose business opportunities if you cannot provide evidence of adequate cover.

Commercial leases

If you lease business premises, your landlord will usually require you to hold buildings insurance (if responsible for the structure) or contents insurance. Some leases require specific policy terms or minimum cover levels. Read your lease carefully before arranging premises insurance. If you own your premises, arranging buildings cover is your decision, so weigh it with the risk-based cover below.

Supplier and venue agreements

If you attend trade shows, work on third-party premises, or supply goods to larger retailers, you may need to provide certificates of insurance. Event venues commonly require public liability cover of at least £5 million.

Assess risk-based cover

Beyond mandatory and contractual requirements, consider what risks could cause your business serious financial harm. Not every business needs every type of cover.

Public liability

Consider this if customers or members of the public visit your premises, or if you work at client sites. It covers compensation claims for injury or property damage. Typical cover: £1 million to £10 million.

Products liability

If you manufacture, import, or sell physical products, products liability insurance covers claims when a product causes injury or damage. This is separate from public liability and is often included in a combined policy.

Cyber insurance

Consider this if your business holds personal data, takes online payments, or depends on IT systems. Cyber insurance covers data breach costs (including reporting to the Information Commission, formerly the ICO), ransomware incidents, business interruption from system failures, and legal defence costs. The average cost of a cyber breach for a small business is significant, making this increasingly important cover.

Business interruption

If you have premises and would lose income during a disaster (fire, flood, major equipment failure), business interruption insurance replaces lost revenue while you recover. It usually runs alongside buildings or contents insurance.

Directors' and officers' (D&O)

If you are a company director, D&O insurance protects your personal assets if you face claims of wrongful acts in managing the company. This covers legal costs and settlements for allegations such as breach of duty, regulatory investigations, or employment disputes brought against you personally.

Buy and compare cover

You can buy straightforward cover direct from an insurer online, use a broker, or join a scheme run by your trade association. A broker is worth using if you work in a specialist sector, need several types of cover, or have unusual risks or a claims history. The British Insurance Brokers' Association (BIBA) lists brokers, and all its members are FCA-regulated.

Give accurate information about your activities, turnover, staff, premises and previous claims, because inaccurate information can invalidate your policy when you claim. Compare at least three quotes on cover limits, excess, exclusions and whether the policy is claims-made or occurrence-based, not on price alone. PI policies are usually claims-made, so the policy in force when the claim is made responds, not the one in force when the work was done. Check the insurer is authorised on the FCA's Financial Services Register.

If a claim or complaint goes wrong

Read the claims conditions in each policy when you buy it, so you know how and when to tell the insurer about an incident.

If your insurer turns down a claim or you are unhappy with its service, complain to the insurer first. It normally has 8 weeks to consider your complaint. If you are a small business and still not satisfied, you can take the complaint to the Financial Ombudsman Service, which is free.

What to do next

Once you have identified your insurance needs:

1. Arrange employers' liability and motor insurance before you start the activity they cover.
2. Check when clients or landlords need to see your certificates.
3. Set renewal reminders, especially for claims-made PI insurance, where any gap in cover leaves you exposed.
4. Review your cover every year and after hiring staff, moving premises, launching new products or entering new markets.