Operating a business online can be cost effective and flexible, with overheads substantially less than a high street shop-front and ready access to global markets. Yet with a never-ending list of things to think about, from supply-chain logistics, to digital marketing, payment gateways and legal, insurance often becomes a ‘hope for the best’ exercise without accounting for the true business risk exposures.
To ensure your online business is protected in a claim, we’ve created a checklist of key covers to consider.
INSURANCE CHECKLIST FOR AN ONLINE BUSINESS
- Business Contents
Regardless of whether you work from home, or an office, it’s essential to protect the physical items integral to operating your online business. Business contents to consider may be:
- Office furniture;
- IT equipment e.g. mobile phone, laptop, printers and any other physical equipment essential to your operations.
- Stock / Inventory
Do you store product inventory / stock at your premises or at a storage facility? It is essential to comprehensively cover revenue producing stock to protect your income.
Make sure your nominated Sums Insured is sufficient, and your inventory is protected from events that would impede your business operations e.g. fire, theft, flood, storm and water damage.
- Marine Transit
Are you importing products, or shipping goods to customers? If so, Marine Transit Insurance should form a component of your business insurance program. Marine Transit Insurance is designed to protect businesses transporting goods by sea, air, rail, road, post or courier due to loss, damage or non-delivery of goods whilst in transit. Don’t rely on courier insurance, this often provide strong cover with the sender often having to pay the excess for any goods lost or damaged.
- Machinery Breakdown
Are you using machinery or equipment to produce products for online sale? How would it impact your business if it were to break down? Would this downtime have a large impact on your income?
Machinery, or equipment breakdown insurance can cover:
- Repair costs for the breakdown of machinery;
- Consequential loss as a result of the breakdown – e.g. replacement for loss and spoilage of stock, and loss of profits which may occur while waiting for parts to repair machinery.
- Business Interruption
Business Interruption Insurance is designed to provide continuity of business income following an event that halts or reduces business operations due to direct physical loss or damage e.g. storm, fire, theft. It is generally purchased as part of “Business Pack Insurance”.
It can cover:
- ongoing costs e.g. rent, wages, invoices or loan repayments that continue regardless of whether your business is able to operate or capacity is substantially reduced.
- Additional costs incurred to stay open and minimise the effects of the closure or reduction in ‘normal’ business activity, plus net profit and/or loss.
- The impact on your business operations as a result of damage to a supplier’s premises.
Despite operating online, many online businesses can still be exposed to Business Interruption losses that may affect your ability to run the business at normal capacity. This makes Business Interruption an important cover to consider.
Nominate a sufficient ‘indemnity period’. This is the time period you are supported by your insurance if your business is ‘disrupted’ e.g. 12 or 18 months. It is common for businesses to underestimate the length of time operations are affected in a claim.
- Public & Products Liability
Public & Products Liability Insurance is designed to protect you and your business if you are found liable for injury to third parties, or property damage in the course of your work. It can cover compensation/settlements ordered payable, as well as legal defence costs, whether a claim is actual or alleged.
Despite being an online business Public & Products Liability Insurance should be considered essential. Key examples are outlined below:
- If you any members of the public visit your business premises, it is essential to protect yourself from claims alleging personal injury e.g. a deliveryman or client may trip on a step and break their ankle and seek damages against you, alleging negligence in maintaining the property.
- If you accidentally damage the property of a third party in the course of your business activities, public liability can protect you against claims for reparations, in addition to legal costs incurred to defend yourself.
- If your business manufactures and/or sells a product, products liability cover can protect you against damages if someone is injured or property damage occurs as a result of using your product. Note: If you are importing products from overseas to sell in Australia, you are deemed the manufacturer of the product.
- Product Recall
Does your online business manufacture, process or distribute goods to a third-party seller? If so, could you absorb the cost if you were required to recall a product off the shelves?
Product recall is an expensive process, as is the process of replacing the stock, and repairing your brand reputation. Product recall insurance is designed to cover businesses for:
- Your costs incurred as a result of a product recall;
- Costs incurred by the third-party to withdraw your product from shelves (e.g. a retailer);
- Loss of earnings or additional expenses as a result of the recall event e.g. PR costs etc;
- Accidental contamination or mislabelling of products.
Even if you don’t have a bricks and mortar retail space of your own, there are still risks to address when distributing your product to customers via third parties.
If you are importing goods into Australia and selling them, commercial law will define you as the manufacturer.
- Cyber Liability
As an online business, a cyber-attack has the potential to severely disrupt your operations and income, particularly if an e-commerce is a major component of your business.
Cyber Insurance can protect you for the following:
- Third party liability claims against you for privacy breaches and loss of employee, personal or corporate information;
- Loss or damage to IT systems, records and data;
- Business interruption costs arising from a cyber event;
- Brand and personal reputation protection;
- Copyright and trademark infringement;
- Costs of negotiating and mediating due to an extortion attempt;
- Statutory fines and penalties incurred due to a privacy breach;
- Legal defence and investigation costs.
Losses as a result of a cyber incident are not covered within traditional Business Insurance policies. Cyber Liability Insurance is designed to cover this risk, and should feature in the business insurance program for all companies, and even more so if you operate online.
- Management Liability
Management Liability Insurance can provide protection for businesses and their directors against unpredictable and substantial liability claims arising from mistakes or deliberate actions by the company or its directors, officers or employees – past and present. This may include:
- Financial fraud & theft;
- Breach of professional duty;
- Harassment, bullying, discrimination;
- Unfair/wrongful dismissal;
- Misappropriation of trade secrets;
- Statutory fines and penalties incurred.
Management Liability can help by covering the cost of investigating, defending and settling claims made by a third party.
- Professional Indemnity
Does your online business provide professional services or advice? Even the most diligent specialists can make a simple error. If a client believes your services have led to a financial loss, they may take legal action to recover the costs.
Professional Indemnity insurance acts as a safety-net. It is designed to provide financial protection for claims against your business for an actual or alleged error or omission in the provision of your professional service, that causes loss to a third party. It can also cover legal costs incurred in the defence of a claim.
Claims may arise from simple things like a miscalculation, incorrect advice, misinterpretation of instructions, an incorrect diagnosis, using incorrect materials etc.
- Trade Credit
Trade Credit Insurance is designed to protect a business against the risk of debtor non-payment and insolvency.
If your business sells goods and services on credit terms, e.g. 30 days to pay, it might be worth considering trade credit insurance to protect your revenue streams.
Note: The present economic environment has seen Trade Credit Insurance claims skyrocket, and cover is becoming increasingly expensive and difficult to secure. Speak to a CBN Authorised Broker to explore your coverage options.
For professional insurance advice, connect with a CBN Authorised Broker.
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