Choosing the right business insurance

Step 1: 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 businesses that only employ close family members. Operating without EL insurance carries a fine of £2,500 per day.

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

Step 2: 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
• employers' liability - proof of 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.

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.

Step 3: 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 ICO notification), 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.

Step 4: Choose how to buy

You have three main options for arranging business insurance:

Direct from insurers

Major insurers offer online quotes for straightforward small business cover. This works well if your needs are simple (for example, a sole trader needing public liability only). You can compare prices quickly, but you are limited to that insurer's products.

Through an insurance broker (recommended for most businesses)

A broker searches across multiple insurers to find the best combination of cover and price. Brokers are particularly valuable if:

• you operate in a specialist sector
• you need multiple types of cover
• you have unusual risks or a claims history
• you want help when making a claim

Use the British Insurance Brokers' Association (BIBA) to find a broker. All BIBA members are FCA-regulated.

Trade association schemes

Many trade bodies negotiate group insurance deals for members. These can offer better rates than individual policies and are tailored to sector-specific risks. Check with your trade association before buying elsewhere.

Step 5: Get quotes and compare

When requesting quotes, provide accurate information about your business activities, annual turnover, number of employees, premises details, and any previous claims. Inaccurate information can invalidate your policy when you need to claim.

What to compare

Do not choose on price alone. Compare these elements across at least three quotes:

• cover limits - per-claim and aggregate annual limits
• excess - the amount you pay towards each claim (higher excess means lower premium)
• exclusions - what the policy does not cover (read these carefully)
• claims-made vs occurrence basis - PI policies are usually claims-made, meaning the policy in force when the claim is made (not when the work was done) responds
• insurer financial strength - check the insurer is authorised on the FCA register

What to do next

Once you have identified your insurance needs:

1. Arrange mandatory cover first - employers' liability and motor insurance must be in place before you start the relevant activity
2. Meet contractual deadlines - check when clients or landlords need to see your certificates
3. Set renewal reminders - especially for PI insurance on a claims-made basis, any gap in cover leaves you exposed
4. Review annually - as your business grows, your insurance needs change. Review cover after hiring staff, moving premises, launching new products, or entering new markets