What is liability insurance for a small business?
Before zooming in on the costs, it’s important to understand that the term ‘small business liability insurance’ consists of one or more specific covers. In this article we will focus on the two key covers; professional indemnity insurance (PI) and public liability insurance (PL).
Each active business in the UK is in need of at least one of those covers, often both. This is irrespective of the business formation. Sole traders, partnerships and limited companies that are actively trading all need to protect themselves with business liability insurance.
Small business liability insurance cost
The table below shows a few common professions. The pricing assumes that the insured has had no claims in the last 5 years and the business turnover is no more than £50,000. These prices come from Suited and do not necessarily reflect the pricing of other insurance providers in this sector. Remember your own price will be determined by a number of factors.
What affects business insurance premiums?
Choosing the right business insurance depends on your profession, business activities, claim history, and turnover.
- Your profession: Choose the most relevant description of your work to avoid unnecessary costs when selecting your small business professional indemnity insurance. Don't list all possibilities just to be safe. Call the insurance provider if you're unsure.
- Your business activities: The type of business liability insurance you need depends on the nature of your business. Professional indemnity insurance is a must if you offer advice to clients. If your business deals with the public, products, or third-party property, consider public and products liability insurance.
- Your claim history: Insurers view liability claims as a sign of poor business management. If you've faced a legal claim, show how you've addressed it to prevent future issues. Insurers seek the best risk management practices to lower insurance costs.
- Your turnover: Estimating your earnings for the next 12 months is important. Overestimating means paying more, while underestimating affects insurance payout. If you're trading below your estimate, adjust your statement. A good insurance provider lowers the rate, otherwise, compare policies.
What you do for a living will decide the cost of your small business professional indemnity insurance. It’s therefore important that you choose the most relevant description. Don’t be tempted to include every option just to be on the safe side. It could cost unnecessarily too much. If you’re unsure, pick up the phone and discuss your business with the insurance provider.
For example, if you’re an estate agent, your rate will be much higher if you include valuations for other than marketing purposes in your selected activities. Your cost of liability insurance is likely to go up as this is considered a risky category by the insurers.
If a particular business activity is causing your premium to become too high or you are struggling to get insurance because you have suffered a claim as a result of this activity, consider outsourcing to reduce your costs and protect your business.
Your business activities
What type of business liability insurance you will need depends on whether you provide advice, deal with the public and employ staff. Professional indemnity insurance is an essential cover for businesses that provide professional advice to their clients.
If your business deals with the public, has a face to face contact with customers or with third-party property, or provides products, you will need to consider public and products liability to protect your business. The moment you take on a member of staff, you must by law maintain employers’ liability insurance.
Your claim history
Insurers of business liability are very sensitive about past claims. In their opinion, a liability claim is an indicator of a failure in business management. If you are in the unfortunate category of having experienced a legal claim against you, make sure you can demonstrate how you have addressed the issue so that it won’t happen again. Insurers are always looking for the best risk management practices which can help to keep the cost of business insurance down.
It really pays off to think about how much you will make in the next 12 months. If you overestimate, you might end up paying too much but you don’t want to underestimate the figure either as that could affect your insurance payout.
However, if during the year you realise that you may be trading under the estimate you gave to your insurance providers, it is worthwhile going back to change the statement. A decent insurance provider should offer you a reduced rate. If not, it’s time to run a business liability insurance comparison.
Compare liability insurance for small businesses
Price comparison sites make it seemingly easy for you to compare the market. However, that is not the case at all and you’re in fact seeing less than 1% of what the UK insurance market has to offer.
Only a handful of insurance providers can afford the cost of featuring on those sites, the majority of which are owned by the same company. If you really want to see relevant results to your business, you’ll need to have the patience of scrolling through to pages 2, 3 and more of Google results. Alternatively, you can use inverted commas around your search terms in Google, for example, “compare liability insurance small business”.
Price is important but the cover matters more
Customers in the UK insurance market are highly price driven. Almost 50% will decide to purchase their business liability insurance based on price.
However, over the years UK business owners have also become concerned with quality. Some 40% consider the cover extent just as important and another 32% want a top-notch service from their insurance provider.
Don’t be easily influenced by discounts. Price isn’t everything and this is particularly true in insurance. Pick a provider that understands your business, you can speak to easily and who offers business liability insurance that is designed for your business activities.