Business insurance tips for small companies
Although silly mistakes may be made on a daily basis in most organisations, businesses can still face huge financial losses should small errors or accidents occur. This is especially true for small businesses where the defence costs and liability pay-outs from a seemingly small mistake or accident can cripple a business.
This is according to Nkejane Mofokeng, Underwriter at SHA Specialist Underwriters, who states that this is why all businesses, especially small enterprises, need to have sufficient insurance in place to reduce their risk of financial loss should they face legal action as a result of an employee’s oversight or accident occurring. “Although business owners strive to employ only the best employees, no matter how experienced the individual is, mistakes cannot be completely avoided.”
Whilst businesses can’t mitigate all risks, challenges and accidents that the business may face, business owners can protect the company’s future by making use of tailor-made liability/litigation indemnity insurance, says Mofokeng. “Many small business owners are unsure of the type of liability insurance most suitable to their business needs and are weary to request the assistance of an insurance broker.”
Mofokeng provides the below guidelines for emerging business owners on how to ensure the appropriate insurance is in place to cover their operations;
Understand business insurance policies
It is important for business owners to obtain an in-depth knowledge of the insurance products available to protect their business. This will help them to make an informed decision and purchase the insurance products that are most suitable to their business’ needs. Business owners are advised to ensure they fully understand the terms and conditions of their policy so that they are aware of exactly what they are covered for and what is excluded under their specific policy.
Consider insurance brokers as the best point of contact
A competent and trustworthy insurance broker can offer great expertise and knowledge when it comes to purchasing sufficient insurance cover. Business owners are advised to speak to an insurance broker about any queries they might have regarding the limits of their liability and how much risk they should carry. A broker can also provide an in-depth risk profile and a market conditions analysis which will help inform the business owner of the cover required.
Purchase professional indemnity (PI) when providing a service
It is advisable for any business that provides a professional service to have PI insurance in place. The world is evolving and more companies are depending on and trusting the advice supplied by their specialist service providers. In any instance where the business or its employees have not provided adequate services or the correct information the client has the right to sue the service provider to compensate for their financial loss.
Importance of Product Recall and Guarantee Cover
A product recall can happen to any business, regardless of its size or industry, where the end users of the products are consumers. The food and beverage industry, household goods manufacturers and the automotive industry are particularly susceptible. Product recalls can prove to be extremely costly for any type of business. In addition, appropriate insurance cover is imperative for companies that manufacture goods in order to ensure business continuity following the significant financial setbacks that arise out of a product recall incident.
Cover the directors and officers
Directors and Officers (D&O) insurance provides cover for any actual or alleged wrongful acts, which are defined as a breach of duty, error, omission, misstatement or misleading statement, by a person in their capacity as a director or officer. However, the policy does not indemnify any criminal activity, wilful misconduct, wilful breach of trust or wilful breach of authority. Without a D&O policy, the directors or officers’ personal assets may also be at risk should a court find that their actions were wrongful.
SMME or sole proprietors are also exposed to D&O legal action seeing that customers, creditors, regulators or employees could bring charges against company directors or officers for mismanagement of the company.
In addition, small businesses, should consider looking at other specialist liability insurance covers such as public and products liability which can be purchased under a Broadform liability policy, a Commercial Crime policy, Gradual Pollution policy and an Accident and Health policy.
“To fully understand the risks that small businesses face, it is key that business owners discuss their need for cover with a reputable insurance broker to protect the business against financial hardship due to underinsurance or no cover at all,” concludes Mofokeng.
