Insurance

Asset insurance. A large proportion of capital in a business will be invested in physical assets, such as buildings and machinery. Asset insurance aims to protect firms, through financial compensation, in the event of loss or damage to these assets. Because types of insurance and premiums vary, it is often worthwhile to seek the advice of a specialist insurance broker. Organizations will usually insure their assets against the following risks:

• Fire: damage to assets resulting from fire, flood, lightning, storms, riots, and vandalism.

• Theft: loss of assets through theft. Many businesses pay an extra insurance premium to cover assets both when they are on the firm’s premises, and when they are authorized to be removed for use elsewhere (known as all risks cover). In such cases, it is essential to make sure that a sufficiently high insurance premium is paid to cover the full replacement value of the assets.

• Disruption of trading: this covers the firm against loss of earnings from sales, usually as a result of claims under fire insurance cover. Fire and disruption of trading insurance, taken together, will pay for damage to assets, and compensate the firm for any loss of earnings due to damaged assets.

Firms are not required by law to take out asset insurance. However, it would be very foolish for a firm not to insure against this kind of loss or damage, given the high proportion of business capital that assets consume, and the difficulty of replacing them without financial compensation. Although premiums can be very high, the consequences of fire or theft for business can be devastating.

Public, product, and employers’ liability. Firms are required by law to insure for public, product, and employers’ liability. The costs are justified, because a successful claim for damages by a member of the public or employee could bankrupt a firm.

• Public liability insurance: firms must insure themselves against causing injury to a member of the public as a result of their business activities – for example, if a highly polished floor in a shop caused a customer to slip over and hurt oneself. Such insurance also covers loss or damage to customers’ property. This is an important safeguard for the public and for firms, because without it, a claim from a member of the public for damages could easily bankrupt a business. The insurance is important for the public, because it guarantees them compensation if the firm is at fault.

• Product liability insurance: firms must also insure themselves against claims by members of the public for damages due to loss or injury caused by the use of their goods or services – for example, if an electrical product catches fire and causes damage, due to an internal fault. This insurance also covers a business for the legal costs which might be incurred in defending itself against claims made against it by a member of the public.

• Employers’ liability: this provides protection against claims for compensation from employees involved in accidents at work.

Other types of business insurance

• Bad debts – caused by customers not paying sales invoices

• Fidelity guarantee – to protect against theft and dishonesty by staff

• Legal insurance – to protect the organization from prosecutions for breaches of the law, such as restrictive trading practices, river pollution, or unfair dismissal

• Motor – third-party insurance is a minimum legal requirement to protect passengers and pedestrians from injuries sustained through motor vehicle accidents