Many small and medium-sized enterprises (SMEs) face a variety of risks that can cause serious financial harm to their bottom line. Protecting against these risks is one of the main reasons for small businesses in the UK to take out business insurance.
In this guide, we'll explain how business insurance works in the UK, including its basic definition, the main types of cover and policies that are legally required.
Insurance for small businesses in the UK refers to insurance taken out by micro, small, and medium‑sized enterprises to protect:
Instead of offering a catch‑all policy, a UK insurer protects businesses by offering:
There are two types of business insurance legally required in the UK, according to the Association of British Insurers (ABI). These are:
The other types of business insurance are optional. Businesses can access them depending on their specific needs. The ABI grouped these discretionary insurance policies into four types:
If a business employs at least one staff member, the law requires owners to take out employers' liability insurance.
Also called EL insurance, this type of coverage works just like workers' compensation policies in other countries. EL insurance provides financial protection if an employee gets sick or injured while performing their jobs. Small businesses need this type of coverage if they employ:
In practice, EL insurance typically pays for:
The law also requires businesses to purchase employers' liability insurance only from authorised insurers or specialist brokers through the British Insurance Brokers' Association (BIBA). Coverage must be at least £5 million, although most insurers offer a minimum protection of £10 million.
If a business is caught running without EL insurance, the Health and Safety Executive (HSE) can impose a £2,500 penalty for each day it goes uninsured. Businesses can likewise be fined £1,000 for failing to display their employer's liability certificate, or for any reason, refuse to show it to inspectors when asked.
The only exception for mandatory EL insurance is businesses without employees (sole traders or proprietorships) or those operated exclusively by families.
Standard car insurance does not cover business-use vehicles, so a business operates one, it needs to purchase commercial motor insurance. This type of specialist policy operates under the same principle as private motor insurance, paying out for bodily injury and property damage that the driver caused. Depending on the level of cover, it can include repair and replacement costs of the insured vehicle.
Commercial motor insurance is an umbrella term for all types of coverage that businesses operating commercial vehicles can access. These are:
Specialist motor insurance policies are also available if commercial vehicles form a core part of a small business. These include:
These types of insurance policies for small businesses in the UK cover legal liabilities towards the general public, including clients. Some examples are:
Professional indemnity insurance, also referred to as PI insurance, is designed for businesses offering professional services or advice, including:
Professional indemnity coverage can protect businesses from claims arising from negligent acts or omissions committed while providing services. PI insurance also covers legal and compensation costs. Although not legally required, some clients may insist that companies take out coverage before doing business them.
Learn about the future trends in professional indemnity insurance in this article.
Public liability insurance, also called PL or general liability insurance, protects businesses from claims of property damage or bodily injury resulting from actual or alleged negligence in their business activities. Because of the level of coverage it provides, PL policies have become among the most popular insurance for small businesses in the UK.
Like professional indemnity insurance, some customers may request public liability insurance as a condition for working with a business.
Product liability insurance protects a business if someone suffers an injury or property damage due to the use of a faulty product it designs, supplies, or manufactures. This type of policy pays out for legal and compensation costs.
Even if a business was not involved in the manufacture of the defective product, it may be held liable if:
Ideally, businesses should purchase a product liability insurance policy that pays out between £1 million and £5 million in compensation costs.
These types of SME insurance are designed to minimise the disruption to day-to-day operations by providing compensation for damages and losses caused by a covered peril.
These types of policies, along with employers' liability insurance, help provide medical assistance and financial security for a business' most valuable assets – its employees.
Dental care is among the typical inclusions in a health care plan. If you want to know how dental insurance works across the country, you can check out our comprehensive guide on dental insurance in the UK.
These insurance products provide your business with some form of financial safety net against bad debts and unscrupulous employees.
Because each small business' coverage needs vary significantly, it is difficult to come up with a one-size-fits-all figure to represent how much insurance for small businesses costs in the UK. Insurers consider a range of factors when calculating premiums. These include:
Each insurer calculates premiums differently. To know the average small business insurance cost in the UK or the cheapest insurance for small businesses in the UK, check out our comprehensive guide to insurance premiums.
