The broker's schedule runs to four pages and the cover summary is written to be reassuring. What determines whether the policy pays is not the summary. It is the two pages of exclusions, the conditions precedent, and the sums insured that you told them yourself and have not revisited since 2019.
Insurance is one of the few business costs where buying the cheapest option can produce a worse outcome than not buying it at all, because a policy that does not respond has cost you both the premium and the assumption that you were covered.
One of these is compulsory and the penalties are daily
Employers' liability insurance is required by the Employers' Liability (Compulsory Insurance) Act 1969 from the moment you have an employee. The minimum cover is £5 million and most policies are written at £10 million. You must be able to produce the certificate, and failure to hold cover can be penalised at up to £2,500 for each day you are uninsured. There are limited exemptions, including some family businesses and companies whose only employee is also the sole shareholder owning at least 50% of the share capital.
Motor insurance for business use is the other legal one. A private policy for social, domestic and pleasure use does not cover driving to jobs, carrying tools, or an employee driving your van. Get the use classes right, because a claim declined on use is a claim declined entirely.
Beyond that, some cover is required by contract rather than by statute. Landlords require insurance under the lease, and typically insure the building themselves and recharge you the premium. Larger customers routinely require public liability and professional indemnity at stated levels before they will put you on a supplier list. Regulated professions, including solicitors, accountants in practice and financial advisers, must hold professional indemnity insurance as a condition of their regulator's rules.
The four that most small businesses actually need
Public liability covers injury to third parties and damage to their property arising from your business. It is not legally compulsory in most trades and it is effectively unavoidable if members of the public come near your work. Typical limits are £1 million, £2 million or £5 million, and £5 million is increasingly the entry requirement for construction and for public sector work.
Professional indemnity covers claims arising from advice, design or professional services that cause a client financial loss. It matters for anyone whose product is judgement rather than goods. It is written on a claims made basis, which has an important consequence: it responds to claims notified during the policy year, not to work done during it. If you stop trading or switch insurer, you need run-off cover or continuous cover for past work, or your old advice is uninsured.
Stock, contents and equipment cover replaces what you own when it burns, floods or is stolen. The mistake here is underinsurance, which is discussed below.
Business interruption covers the income you lose while you cannot trade. It is the cover people skip and the one that most often decides whether a business reopens. The key variables are the indemnity period, which is how long the policy will keep paying, and the basis of the sum insured, usually gross profit as defined by the policy rather than as defined by your accountant.
Then, depending on trade: goods in transit, tools cover, cyber and data cover, product liability, employment practices liability, and directors' and officers' cover if you have outside investors or a board.
Underinsurance is the failure mode nobody plans for
Most commercial policies contain an average clause. If the sum insured is less than the true value at risk, the insurer reduces the claim in the same proportion, including on partial losses.
Insure stock at £40,000 when the real figure is £80,000 and a £20,000 fire claim may be settled at £10,000. You were not refused. You were averaged, and the arithmetic is in the policy you signed.
Check three things annually. The rebuild or replacement cost of what you own, not the second-hand value and not what you paid, because construction and equipment costs have moved a long way in recent years. The peak value of stock rather than the average, because a fire in the week before Christmas finds you holding three times your normal stock. And the indemnity period on business interruption, because twelve months sounds generous until you price how long it takes to find new premises, refit them and rebuild a customer base. Many brokers now recommend twenty-four months as the minimum for a business that depends on specific premises.
Read the conditions, because that is where claims are lost
Every policy contains conditions precedent to liability. Breach one and the insurer may decline the claim regardless of the merits.
Typical ones include specified locks and alarms on the premises, with the alarm set whenever the premises are unattended; a limit on cash held overnight; a requirement that tools are not left in an unattended vehicle overnight; annual electrical inspection or gas safety certification; and the hot works condition in trade policies, which requires specific precautions and a fire watch after any work involving flame or heat.
Then the exclusions. Wear and tear, gradual deterioration and inherent defect are excluded from almost everything. Flood cover may be restricted or priced separately in flood zones. Terrorism is usually excluded unless bought back through the Pool Re arrangements. Cyber cover is now routinely excluded from general policies and sold separately. And after the pandemic, most business interruption policies were rewritten to make the treatment of infectious disease explicit, following the Supreme Court judgment in the FCA's test case in 2021.
The other legal point worth knowing is your own duty. Under the Insurance Act 2015 a business buying insurance owes a duty of fair presentation of the risk: you must disclose every material circumstance you know or ought to know, in a reasonably clear and accessible way. The Act replaced the old all-or-nothing remedy with proportionate remedies, so an innocent failure to disclose may reduce a claim rather than void the policy. It is still your duty, and it covers things people forget to mention: a previous claim, a criminal conviction of a director, a change of trade, subletting part of the premises, work at height, or a new machine.
Tell the broker when things change, in writing, and keep the reply.
Where this shows up in the game
Business Baron lets you buy cover and lets you decline it. Fires, floods, thefts and injury claims happen on a schedule you do not control, and the difference between a setback and the end of the business is usually whether the policy was in place and adequate. Employers' liability is compulsory in the game as it is in law, and the temptation to underinsure stock is there for anyone watching their monthly costs. The free game has no time limit, which is long enough for something to go wrong.