startup advice

Business insurance can seem daunting at first, but don’t panic – it is more straightforward than you think. Here’s a run-down of some points to consider.

First off, if you’re an employer, at the very least you are legally required to have employers’ liability insurance (EL), so get this sorted before you do anything else.

Not only can you face a hefty fine from the Health & Safety Executive if you don’t have it, but EL will protect you if one of your employees suffers an illness or injury while working for you, covering any legal expenses and compensation if you’re found liable.

Next, when you’re organising EL, you’ll probably find it alongside public liability insurance (PL), which covers you if you or one of your employees causes an injury or property damage to a member of the public – whether at your office, visiting a client or at an industry event.

Another basic consideration is contents insurance, which will protect your belongings in the case of loss, damage, fire or theft.

While office contents policies will cover your fit-out, computers, office equipment, furniture and documents, you are also likely to need portable equipment insurance, which covers laptops, mobiles, cameras and tablets – as the name suggests! You will often find the two bundled together, along with your EL and PL.

With your basics out of the way, the next consideration is typically professional indemnity insurance (PI), designed for those businesses who offer a professional service or advice.

PI will cover you if you make a mistake, or if a client suffers – or claims to suffer – a financial loss as a result of your work, picking up the bill for any legal and compensation costs.

Beyond the protection it offers, some of your customers are likely to insist upon PI – so it could even help you win business. When buying this cover, one thing to think about is where your clients are based. If they are abroad – particularly the US or Canada – you might need a more specialist cover, so check this before making any final decisions.

I’ve said it before and I’ll say it again – directors and officers liability is the most important insurance a digital business can buy. Many founders don’t realise that, even as a director of a limited company, you can still personally face legal action, fines, or even prison sentences! You can also be disqualified from being a company director.

D&O covers allegations that you have personally done something wrong (e.g. a claim from an investor or co-founder because you made a decision which required shareholder approval, or errors in financial reporting). Investors often ask about D&O as part of their due diligence process, so getting it sorted early shows you take your responsibilities seriously.

Just a couple of points to watch out for with D&O policies. Firstly, given startups have a higher failure rate, insurers often impose conditions relating to the business needing to be profitable, or they exclude claims related to the business going insolvent, which is bad news for founders! Secondly, many policies also contain a major shareholder exclusion (meaning a claim made against you by an unhappy VC or co-founder might not be covered) so make sure you check your policy carefully for these loopholes – or come to Digital Risks where we have specifically removed them!

Finally, with so many businesses now holding client or customer data, cyber liability insurance is another option you need to give some serious thought to. We discussed this in detail in a previous post, which you can find here.

Digital Risks (www.digitalrisks.co.uk) is a specialist insurance provider that focuses 100% on the needs of digital businesses.