Insuring your assets and liabilities

23 May 2002 by
Insuring your assets and liabilities

A business's assets and liabilities come in several forms, but generally can be categorised in one of three groups:

  1. Tangible assets Property, machinery and plant (such as ovens and freezers), stock (including food and wine) and vehicles.

  2. Liabilities Made up of employer's liability, public liability, business risks, professional liability, directors & officers liability, and interruption insurance.

  3. People assets
    Your key personnel and staff members.

Key personnel insurance is covered in a separate article.

So, what insurances do I need to cover my tangible assets and liabilities?

Property insurance There are numerous ways in which property can be damaged: fire, theft, storm, riot, burst pipes, malicious damage, earthquake, explosion, aircraft and impact. A standard fire and theft policy is the minimum required in business.

Machinery and plant Potential damage to equipment such as your ovens, cold store and cleaning equipment, must be covered, since without the means of production the business will face financial loss.

Stock
Stock - and this includes your wines and spirits, your ingredients and raw foods - forms part of your working capital and its loss could severely damage the business. Cover would also include goods in transit (eg, prepared food for outside events) and may need to be extended to cover goods transported by a third party as well as the company's own vehicles.

Vehicle insurance A compulsory insurance. It is illegal for a vehicle to be on the road without insurance for, a minimum of, third party risks. This is defined as death of, or bodily injury to, any person and damage to third party property. Comprehensive vehicle insurance would ensure the company's vehicles are covered in the event of damage.

Employers liability This is a compulsory insurance under the Employers Liability (Compulsory Insurance) Act 1969. Since 1 January 1972 every employer carrying on business in the UK has had to insure against liability for bodily injury or disease sustained by employees and arising from their employment. The legislation states that a certificate of insurance is to be issued and must be displayed at every place of business. The intention is that the employer does not suffer financially, but is compensated for any money he may have to pay in the event of a claim.

Public liability
Members of the public may suffer injury or damage through coming into contact with the business and its operations. The cover provides compensation for those who may have to pay damages and legal costs in the event of a claim by a member of the public. Strange then this insurance is not a legal requirement. However, it is sound practice for anyone in business to take out public liability cover. After all, it's not unknown for customers to be worse for wear and fall down stairs on the way to the loo or for coffee to be spilt.

Business risks
Every business organisation is exposed to the risk of incurring legal liability due to its operations. The public may be in contact with the firm in its offices or the firm may be on the premises of others. This might be where, for example, you are contracted to supply and serve a buffet on a customer's premises: You might accidentally drop a bottle of wine onto a computer.

Product liability
Most public liability policies for businesses exclude liability arising out of goods sold. However, this can be an onerous liability if the product - in this case, food - causes injury to a member of the public. Remember E coli? A separate policy is needed to cover this risk and it is usual to have a time limit for claims once the product or service has been provided.

Professional indemnity and directors' & officers' liability The past decade has seen the courts hold the directors and officers of a company personally liable for their negligence in operating the company.

We are now in a world where creditors, customers, employees as well as shareholders can take action against directors personally. While it has tended to be the big companies that have grabbed the headlines, the smaller, owner-operated company is also at risk. A legal expenses policy could be a useful addition to cover.

Interruption insurance The policies mentioned earlier dealing with fire and all risks cover property damaged or destroyed, but not losses caused by reduced sales during or after the repair period. After all, if your pub or restaurant is flooded, as so many have been in the last couple of years, overheads will remain at their full level even though sales have reduced. Net profit will probably be down and there may well be increased costs just to maintain the business. The most common interruption policies deal with losses resulting from fire and special perils: engineering breakdown; computer damage and breakdown.

The cover for loss of profits will relate to a pre-agreed indemnity period deemed the maximum time needed to get the business back to full strength.

Combined policies
Combined insurance policies are available that will provide cover for a number of essential risks, including: theft and other perils; contents, machinery and stock; interruption insurance to cover loss of profits; employer's liability; public liability including business risks. Vehicle insurance may also be added. This has the advantage of being cheaper and easier to administer than having several separate policies and the businessman has only one premium and one renewal to deal with.

Remember, while combined products are available it is essential to ensure your own business needs are identified and added to your core cover.

by Brian Harding

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