For many small business partnerships, the death of one of the owners can pose a huge problem for the surviving owner(s). Dealing with grief is one issue, but dealing with the financial consequences is quite another. Using life insurance to fund a buy-sell agreement is one solution that many small business owners find very attractive.

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A flagship government programme that offered up to £5bn to protect suppliers from collapse of their customers has only provided just £7m of assistance to 52 companies since it launched.

The scheme which was announced in the Budget was the government’s idea to help shore up the market as nervous private sector insurers cut their exposure during the credit crisis.

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The vast majority of small and medium sized businesses in Britain do not have sufficient business insurance a new report has claimed.
A business insurance provider has revealed that most people in the business community believed that most small businesses were overlooking the range of small business insurance policies and putting themselves at risk.

“When starting a business, particularly if you are starting in a new industry or profession, insurance is the one of the easiest things to forget,” said a spokesperson. “The extra burden of cost an insurance policy puts on a business can be off-putting, and it can seem unnecessary in the early stages.”

“But insurance is essential to maximise the success of a businesses”, she continued, “because without the appropriate protection in place some tradespeople or professionals would be turned down for work, which could be pivotal when a small business is trying to get off the ground.”

According to the spokesperson self-employed people are especially vulnerable to being uninsured. These include people such as, consultants or tutors along with photographers and musicians. All of these people would be advised to consider taking out professional indemnity insurance, yet few do.

Professional indemnity insurance would protect professionals from situations where they could be accused of negligence, such as providing bad advice or making a serious mistake which could result in legal claims for compensation.

Compensation claims can “seriously cripple or even close down” a small or medium sixed business if professional indemnity insurance is not in place, the spokeswoman warned

A leading organisation is of insurers and underwriters are predicting that the recession and continued job losses will see an increase in white collar extortion against businesses. The organisation also found that many businesses are not insured against cyber crimes which could result in data or business loss.

“According to a DTI Information Security Breaches Survey, a third of UK businesses think general small business insurance provides full cover for damage to the business arising from data loss,” commented a spokesperon, “but the reality is quite different, with very few businesses likely to be insured against the result of cyber attacks on its most crucial management and business tool – corporate and customer information, most of which is today held on corporate IT systems.

“For public company directors, this is in fact in breach of their duties under the Turnbull Report, which requires them to identify, manage and take an informed opinion on the transfer of risks for the business.”

While installing the latest firewall and virus protection programs can help, the fact is that many cyber attacks are carried out by hackers who enjoy the challenge of breaking into systems. There are an ever increasing number of computer viruses which continue to cause damage to businesses. A spokesperson for the organisation went onto say:

“The economic downturn has resulted in people of all levels and responsibilities losing their jobs, and those with a detailed knowledge of their former employers’ IT and operating systems may well present a real potential threat, and turn to extortion as a way of taking revenge on their former employer, and of making some money at the same time.

“Malicious erasure of data from client files or tampering of individual internet websites is a real risk and will cost a business dear in both clerical and management time, as well as through lost revenue and reputation.”

As a result of the potential increase in cyber terrorism businesses are being advised to thoroughly review risk management procedures and insurance programmes to ensure they have the correct cover in place.

Insurance fraud costs have increased by an estimated £1.9 billion this year, according to a new report released today. The report shows that insurance fraud is costing an average household of £44 annually in higher insurance premiums.
According to insurers, around £5.2 million of fraudulent claims go undetected every day in the UK. This is 24% rise compared with just two years ago.

The report released by Association of British Insurers (ABI) also indicates that companies are detecting fraud on a more regular basis. Over £730 million was rejected from suspicious claims last year.

The ABI said it had seen an increase in the number of people who were caught lying or withholding relevant information in an attempt to get cheaper insurance premiums.

The YouGov survey also found that while insurers are able to detect bogus claims quicker, now people are far more likely to lie on their insurance forms in order to obtain cheaper cover.

Some of the most popular scams included withholding information about speeding convictions and listing an incorrect address for the main driver of a vehicle.

The ABI said it had also seen an increase in the number of fraudulent accidental damage claims made on home insurance policies, with people deliberately damaging furnishings or electrical goods so that their insurer would pay for new ones. It also reported a 35% increase in claims involving the damage or loss of high value watches, laptops and LCD televisions.

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New proposals made by business leaders today would see workers put into a low-paid “limbo”, instead of being made redundant.

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Reported cases of business fraud have risen by 450% during the first six months of 2009, according to the accountants BDO Stoy Hayward.

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Small business insurance can be a complex topic to understand if you are new to running your own business. Before choosing a business insurance policy for your company you need to seek reputable advice before a decision can be made on what policy should be purchased.

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Seasonal risks to your business are often overlooked and you will certainly feel the heat if your business insurance policies don’t cover you for the perils of summer!

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Businesses are being warned that cost-cutting excerises of reviewing existing insurance policies is a short-sighted strategy during the recession.

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