Michael Buckworth, shares 5 key areas every entrepreneur should consider when thinking about insurance for their business – from checking policies to covering losses.
1. Primarily manage risk in contracts
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.
2. Get the correct insurance
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 tailored to the specific needs of your business.
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.
3. Check for sneaky policies
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.
4. Make sure you can cover multiple claims
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.
5. Require your suppliers to have in place insurance
If a supplier causes 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.
Buckworths is the only law firm in the UK working exclusively with start-ups and high-growth businesses. With 70% of its clients in technology, of which half are fin-tech businesses, the firm is recognised for its unparalleled expertise in advising start-ups from incorporation, to strategically raising investment, to exit. It has a finger on the pulse of the start-up ecosystem, and offers clients a clear understanding of current market trends. Why not come along or tune into one of our events?