Many small businesses, especially sole traders, could be in big trouble if their customers become insolvent.  Yet, rather surprisingly, the vast majority of these businesses don’t seem to view this as a genuine risk.  Adequate coverage to protect against a customer’s payment default is necessary to mitigate the possible effects of bad debt on the business.  Failure to have insurance cover for customer payment default could impact the company’s staff, other customers, and their customers’ businesses – a sort of domino effect that could spread misery all around. The risk is exacerbated if the customer is an international trader or an overseas customer who might be affected by unforeseen events, including war, political events, natural disasters, etc.

As always it is better to be safe than sorry. A small business insurance policy that provides cover for non-payment by a customer would go a long way to ensure that the business survives such an eventuality.

With such a small workforce, inevitably there will be one or two persons who play a key role in the running of the enterprise. Losing these persons would usually be disastrous for the business, especially small shopkeepers or sole traders running on a shoe-string budget.

Rather surprisingly, only about 15% of these businesses have key person insurance! Key person (or keyman) insurance is absolutely essential for small businesses to protect against the loss of key “revenue earning” personnel, without whom the business would be in the doldrums! The situation becomes even more serious if that key person is a director/partner of the business and is standing guarantee for repayment of bank loans borrowed by the firm.

Keyman insurance provides you with an income for the duration that the key person is incapacitated or, in the event of his/her death, a lump sum of money. If the key person was a partner/shareholder, the other partners/shareholders would have the money to buy out the key person or their estate.

In the case of family-owned businesses, while having personal life insurance is good, the owner should  consider separate keyperson insurance so that the business would have the time and resources to recruit and train new personnel to run the business rather than letting the business collapse due to the death or incapacitation of the key person.
If your business does not have keyman insurance, you need to reconsider your options. Will your business survive the loss of key personnel? It is better to have protection in place rather than worrying about what to do to keep your firm afloat after the loss of your key personnel.

Most people think business shutdowns occur because of natural events such as floods or man-made events such as fires or even terrorist strikes. However, there are any number of things that can cause shutdowns that will affect small businesses, which are especially vulnerable to disruptions. Swine flu affecting key staff, snowstorms blocking roads, a sudden power outage, staff resignations, problems in the supply chain, there are several ordinary events that could cause business interruption, posing a serious threat to the firm’s continuination in business.

Most small businesses ignore business interruption insurance because they operate on very thin margins and usually have a hand-to-mouth existence. Under these circumstances, they tend to see no need for business interruption insurance beyond the regular coverage against fire, floods, etc.

Small business owners who neglect to take out adequate business interruption insurance fail to realize that when the business is shutdown due to unexpected events, there is a two-fold impact: on the one hand, there is a loss of income due to the shutdown and on the other hand, regular expenses remain! You still have to pay things like employees’ salaries, rent, mortgages, taxes, etc.

It is impossible to be prepared for every eventuality but small business owners need to have a two-pronged strategy to protect their businesses. They should have adequate business interruption insurance coverage. They should have a business continuity plan in place so that the business can be up and running as soon as possible after a disaster has struck.

The Chancellor has tried to soften the blow by offering extensions to several small business-friendly schemes. Unfortunately, most of these schemes will be beneficial to only a small proportion of small businesses whereas the NI hike would severely impact almost all of them. Many see it as a tax on jobs in a sector that, despite the recession, continues to employ a very large number of people, estimated to be over 50% of the UK workforce. Should small businesses cut back further, the unemployment rate, already nearly 8%, is likely to increase further at a time when there is compelling need to increase job creation!

The increasing difficulties that small businesses face could see them turning to freelancing and or outsourcing to survive, a move that could have repercussions on tax collection.

One unwelcome result of the increased NI rate could be the neglect of small business insurance. Business owners already are much too busy trying to run a successful business. Quite often they fail to get insurance cover that is required under law. With earnings being eroded by the additional costs, some of them are likely to forego what insurance cover they already have!

According to Phil Orford, Chief Executive of the Forum for Private Business, “This tax hike will come at the worst possible time for small firms – just at the point where, hopefully, the economy will be in recovery and they will be looking into taking on new staff. Putting a tax on employment isn’t the way to reduce the public debt - it will stop businesses from growing, restrict job creation and take more money from potential consumers who would otherwise put it back into the economy.”

Insurantz.com, the online small business insurer, predicts that Monday will see the most bumps, scratches and accidents of 2009 based on historical statistics.

The insurer has analysed years of data and assessed risks for van drivers.  The data shows that there is a significant uplift in accidents because of the clocks going back along with changing weather and light conditions.  This dramatic change in light around rush hour has an adverse reaction on both conditions for motoring and on driver tiredness.

The firm is warning van drivers and women to take greater care and have dubbed the day Manic Monday in a bid to help draw attention to the dangers.

James Pickering, managing director of Insurantz.com, said: “van drivers are very safe road users but the first Monday after the clocks go back the number of road traffic accidents increases.  We’ve dubbed it Manic Monday because historically vehicles are involved in more bumps, prangs and potentially more serious types of accidents on this day than any other day in the year.  Hopefully by drawing attention this problem we can make sure that commercial vehicle drivers are aware of these dangers and watch out for other drivers particularly around rush hour.

Insurantz.com provides light commercial vehicle drivers with insurance to cover up to five vans and fifteen drivers all under a single policy.  This includes small or transit vans right up to 3.5 tonne vans.

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.

The low take-up has been blamed on the scheme’s restrictions and relatively high charges. These amounted to 2 per cent of turnover which is more than four times the cost of typical private sector insurance.

Since yesterday, the business department has said that it is widening its criteria and cutting charges in order to make the scheme more successful and to encourage more businesses to take up the initiative. The low take-up rate has embarrassed the government as they have already been forced to reduce restrictions previously.

“The scheme is £5bn, but we have never assumed that it would get to that level. That’s the amount in the programme should there ever be sufficient demand,” the business department said.

The scheme allows suppliers to buy six months of government-backed insurance to restore cover to its original level or double the amount they can get from the private sector.The four largest credit insurers have all signed up to the initiative: Euler Hermes, Atradius, Coface and HCC.

The private sector currently provides around £300bn of trade credit insurance a year. This covers transactions by around 250,000 companies in the UK.

“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

According to the Institute of Advanced Motorists, reacting aggressively by slamming brakes on in a bid to get the vehicle behind to back off could prove dangerous. The group have advised people that they should instead move over and allow the driver to pass them by instead.

A representative from the organisation suggested: “Find the earliest opportunity to change lanes in safety and allow the tailgater to get past you and become somebody else’s problem.”

Recent research conducted by the AA found that a major problem for British motorists was having someone drive too close behind them on the road.

Many drivers will reduce their chances of being involved in an accident by avoiding any confrontation on the road this summer. This will help to keep their van insurance premiums low and avoid any unnecessary accidents.

According to a recent survey one of the safest vans on the market is the Fiat Fiorino. Gerry Clarke, director of Fiat Professional explained: “Because fuel consumption and maintenance are not affected by Traction +, this new introduction represents not only a sensible decision for owners, but a cost-effective one too.”

“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.

Commercial insurance cover is a complicated subject and many businesses fail to recognise the difference between receiving information and receiving advice.

The study found that around one-third of SME owners who didn’t use an insurance broker didn’t realise they were only receiving information on a single insurer’s products and were not being advised which policy would best suit their business.
The study found that small business owners are often too pressed for time to read and research all the conditions of a small business insurance policy.

The result is that businesses often find themselves unprotected and unprepared for the risks that face their company. Most businesses find that their insurance policy fails when they need it most – when they need to make a claim.

Eric Galbraith, BIBA’s chief executive, says: “It is clear there is confusion among commercial buyers of insurance, and we have suspected this for some time. It is worrying to think these firms could end up with inadequate or even the wrong cover because they did not receive advice or a recommendation.”

The sheer number of insurance policies available means that business owners have plenty of choice when it comes to purchasing a policy, but many businesses fail to buy the right cover the association warned. This is where the experience of an insurance broker is helpful as they can recommend policies based on businesses specific needs

Insurance brokers take the time to learn exactly what each company needs and provide assistance in the event of a claim.
The research found that the feedback from those who did use brokers was generally positive, with 95% of SMEs saying they are likely to do so again for their business insurance when their policy is due for renewal.

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