Start-Up Advice: Common Business Risks

The UK has experienced a freelancing boom and the candidate crunch can be partly explained by a wave of employees realising the value of flexible work and deciding to go it alone as an independent business.

One of the problems of running your own company, however, is the risks associated with operating alone and the potentially serious consequences if things go disastrously wrong, especially in the early years of your new business. 

Every business has some level of risk exposure in its work. A business liability loss exposure is a condition or situation that presents the possibility of an organisation becoming legally and financially responsible for injury, harm or damage to another party. 

These exposures stem from the kind of work an organisation performs and where that work is executed. They also encompass other aspects of business-related circumstances, activities or events that could result in harm to a third party.

This article explains common types of business liability loss exposures and offers guidance on how the correct insurance policy can reduce an organisation’s risk level.  

Common Types of Business Liability Exposures to Know

There are several types of liability exposures that every organisation should know. Five possible loss exposures that may affect an organisation include the following:

  1. Occupiers’ liability—Occupiers’ liability describes the risk an organisation faces if a customer or client is injured on the premises (eg tripping and hurting themselves). Organisations that require customers or clients to be physically present, such as retail stores, are particularly at risk for these losses and may be held liable for bodily injury or property damage.
  2. Employers’ liability— Employers’ liability describes the risk an organisation faces if an employee injures themselves or becomes ill in the course of their work. It also refers to former employees who later become ill and claim that their illness is the direct result of their ex-employer’s negligence.
  3. Products liability—Products liability refers to the loss exposure an organisation faces as a result of manufacturing, distributing or selling an unsafe or defective product. Any organisation that makes or sells products is at risk. Associated injuries may occur virtually anywhere in the world once an organisation’s products have been manufactured or sold.
  4. Professional indemnity liability—Professional indemnity liability describes the risk an organisation or individual faces should certain errors be made during the course of business operations. Such exposures include professional negligence, errors or omissions, breach of professional duty and civil liabilities. For example, a client or customer may claim to have suffered financial loss resulting from poor or inadequate professional advice. Professions at greater risk from such exposures include management and business consultants, IT professionals, designers, fitness professionals and contractors.
  5. Directors’ and officers’ liability—Directors and officers have specific duties, responsibilities and powers relating to their positions. As such, directors’ and officers’ liability describes the risk an organisation faces when a director or officer is found to have acted outside their terms of reference. For example, investors or shareholders may blame directors personally for their losses.

Potential Consequences of Liability Exposures

In the event of a liability loss, organisations can face a variety of potential consequences, such as:

  • Damages—If a court deems an organisation responsible for a loss, that organisation may be held financially accountable for paying damages to the harmed or injured party.
  • Defence costs—The organisation may have to pay legal defence costs and the costs associated with the claim.
  • Reputational harm—Due to public liability losses, organisations may experience reputational harm, including but not limited to the loss of business, decreased employee retention, and a loss of consumer loyalty and investor trust.

Although liability loss exposures are a risk for every organisation, the severity of the consequences can be alleviated with proper insurance policies.

Business Liability Insurance

No matter how careful an organisation is, there will always be risks associated with liability loss exposures. Therefore, the best way to protect an organisation is to purchase business liability insurance.

Business liability insurance policies are designed to cover an organisation’s liability claims for bodily injury and property damage to third parties alongside a range of other cover options.

Each business is unique and exposures will vary, so talk to one of our experienced SME insurance experts today for further guidance on how to best protect your organisation from liability loss exposures.