Business insurance for startups

By law, most companies are not required to have business insurance, except those that employ people. Therefore, if you’ve only recently set up a company, you may not need any, but certain insurance may benefit you and your business.

There are many types of business insurance available, each designed to protect your company from various risks, unforeseen events, and associated legal fees and compensation claims.

We’ve created this guide to business insurance for startups to help you understand the importance of insurance and provide an overview of the policies you should seriously consider for your company.

Employers’ Liability insurance

Employers’ Liability (EL) insurance covers the cost of compensation claims and legal fees if a staff member is injured or becomes ill due to the work they do for your business.

Some examples of claims include where an employee:

• Trips on a damaged or loose carpet while carrying a hot drink and burns themselves
• Is injured from operating machinery or performing tasks due to employer negligence (e.g., poor machine maintenance, improper training, or lack of protective equipment)
• Becomes ill due to coming into contact with toxins in the workplace

Under the Employers’ Liability (Compulsory Insurance) Act 1969, you are legally required to have EL insurance from the moment you employ anyone to work for your company. This includes:

• Full-time and part-time employees
• Temporary and seasonal staff, apprentices, and volunteers
• Self-employed contractors that your business hires
• People taking part in training schemes or work experience

However, you may not need this insurance if you only employ certain family members or people not ordinarily resident in Great Britain. For the purposes of EL insurance, a family member of an employer extends to the following individuals:

• Husband, wife, or civil partner
• Parent, step-parent, or grandparent
• Child, stepchild, or grandchild
• Sibling or half-sibling

If you require Employers’ Liability insurance, you must ensure that the policy is from an authorised insurer and provides cover of at least £5 million. You must display copies of your EL certificate in the workplace for the benefit of your employees.

Most policies offer cover up to £10 million. However, if your company operates in a high-risk sector, you may wish to consider a higher level of protection to ensure sufficient cover for any claims.

You can be fined £2,500 for every day that your company is not properly insured. Furthermore, you may be fined £1,000 if you fail to display your EL certificate or refuse to make it available to inspectors from the Health and Safety Executive or other enforcement authorities upon request.

Detailed guidance on your duties under the Employers’ Liability Act is available from the Health and Safety Executive.

Directors’ and Officers’ insurance

Directors’ and Officers’ Liability insurance (D&O insurance) is an optional type of cover, but it’s highly recommended if you run a company or limited liability partnership (LLP). Learn more about the pros and cons of operating as an LLP in our guide.

It covers the cost of defending and paying compensation for claims brought against a director, company secretary, LLP member, or key manager for alleged wrongful acts, such as:

• Breach of trust or duty
• Negligence
• Breach of health and safety laws
• Defamation
• Financial reporting errors
• Maladministration of workplace pension schemes
• Misleading statements or misrepresentation of facts in a directors’ report
• Wrongful trading
• Breach of company/LLP rules and regulations

Directors and officers have specific powers, duties, and responsibilities relating to their positions. These may arise under legislation (e.g., the Companies Act 2006, LLP Act 2000), the articles of association or partnership agreement, or contracts of employment or services.

Where it is believed that a director or officer has acted wrongfully in their decision-making or actions, claims may be brought against them by shareholders and investors, creditors, employees, clients, regulators, or other third parties.

D&O insurance helps protect the assets of both the business and its individual directors and officers by covering their legal defence costs and any losses or compensation arising from claims. However, it does not cover claims made against the business as a whole.

Cyber insurance

Cyber insurance protects businesses from digital threats, including data breaches, security failures, cyberattacks, and malicious hacking. It’s an optional type of cover but worth considering if your company uses, sends, or stores electronic data (e.g., employee or customer information).

While your company is responsible for its own cybersecurity, having the right insurance will support your business in the event of a cyber attack.

• Cybersecurity basics for startups
• Company policies every business should have
• UK business laws you need to know

Most cyber insurance policies will cover financial losses suffered by your business (the first party) and by third parties when data or electronic systems are damaged, corrupted, lost, or stolen.

Specifically, cyber insurance usually covers the cost of:

• Managing cyber risks and preventing cyber incidents
• Investigating cybercrimes
• Cyber forensic support following a cyber event
• Temporarily outsourcing services to third-party providers (e.g., call answering services)
• Recovering lost data
• Restoring computer programmes and systems
• Damage to digital assets (e.g., websites and photos)
• Managing reputational damage (e.g., public relations advice)
• Ransom payments demanded by hackers
• Loss of business income during the period of interruption
• Notifying affected third parties
• Third-party liability claims and associated legal costs
• Fines imposed by regulatory bodies for data breaches

This type of insurance is crucial in the modern digital world. According to these government statistics, 50% of businesses and 32% of charities in the UK have reportedly experienced a cyberattack or security breach in the last 12 months.

Public liability insurance

Public liability insurance provides financial protection for certain incidents concerning your company’s activities. It covers the cost of legal fees and compensation for claims made by customers, clients, or members of the public for:

• Personal injuries
• Death
• Loss of or damage to their property

Public liability policies vary, but most will cover you for incidents that occur:

• On your business premises (this includes your private residence if you run your business from home, and people visit the property for professional purposes)
• Off-site at events or activities that your company organises or attends (e.g., craft fairs, markets, charity events, business dinners)
• On clients’ premises (e.g., if you’re a tradesperson)

It covers claims made by anyone (except employees) with whom your company interacts in the course of its operations. Furthermore, it does not cover damage to your own property.

The cost of public liability insurance can vary depending on the size and nature of your business, the level of risk you may incur, and your insurance claims history.

Other types of business insurance

There are many other types of business insurance policies you may wish to consider, including:

• Commercial property insurance
• Business interruption insurance
• Product liability insurance
• Income protection insurance

How to get business insurance for your company

There are multiple ways to get business insurance for your startup. In the same way that you search for and arrange insurance policies for your home or car, you can obtain business insurance directly from insurance providers, through comparison websites, or from a specialist insurance broker.

Before purchasing insurance products or engaging the services of a broker, you should check that they’re authorised by the Financial Conduct Authority and listed on the Financial Services Register.

1. Obtain quotes directly from insurers

If you have existing policies with certain insurers and are satisfied with their services, you may wish to contact them directly to obtain quotes for various types of business insurance.

You’ll need to provide some information about your company and its activities so they can understand your business and the level of cover required.

You should always obtain quotes from multiple insurance providers and review and compare their terms to determine which policy is best for your business. Review the policies’ coverage and exclusions, their costs, the claims process, and the timeframe for claim payments.

2. Use price comparison websites

With numerous providers and deals available, using price comparison websites is often the quickest and easiest way to obtain insurance. These websites offer quotes from multiple providers, allowing you to view and compare a wide range of offers in one place.

You should check multiple comparison sites, as each offers different providers and deals. Some of the most popular comparison sites in the UK are:

• Compare the Market
• Money Saving Expert
• Go Compare
• MoneySuperMarket

It’s also worth noting that certain insurers are not listed on comparison sites at all, so you won’t get whole-of-market search results.

If you select an insurance product from a price comparison website, you’ll click on a link that will take you to the insurance provider’s website to complete the purchase. At this point, you may be presented with other options to tailor your insurance policy.

3. Use an insurance broker

If you don’t have the time or inclination to search for business insurance, you should consider using a specialist insurance broker. They can provide expert advice and recommend the most suitable types of coverage for your business. You may need to choose this option if you can’t obtain quotes directly from insurers or via comparison websites – this sometimes happens for companies operating in certain industries or reaching a certain size.

Generally, insurance brokers earn commission rather than charging up-front fees. However, be sure to ask about their fee structure and compare it with the brokers’ before using their services.

Look for a broker that specialises in your specific trade or the type of insurance you are interested in. If you need help finding a broker, contact the British Insurance Brokers’ Association (BIBA), Citizens Advice, or your trade association.

If you’re a member of a trade association, you may be able to obtain insurance through the association or get recommendations of insurers specialising in your particular trade sector.

Purchasing business insurance for your startup

Investing in business insurance is a crucial step in safeguarding your startup. It provides peace of mind, but also builds trust with your clients and customers. As you navigate your insurance options, consider the broader support you may need for your business.

1st Formations offers a range of essential services, including company registration and support to help you stay compliant. Ensure your business is not only protected but also set up for long-term success. Visit 1st Formations today to learn how we can assist you on your entrepreneurial journey.

*1st Formations introduces customers to Markel Direct to discuss their business insurance needs. The 10% discount is subject to underwriting, eligibility and terms, and may be withdrawn at any time.