Do I need retail insurance for my small business?

By Anna Jordan on Small Business UK - Advice and Ideas for UK Small Businesses and SMEs

If you run a retail business, you need to get yourself some insurance. The type of insurance you’ll need will depend on the size of your business and its day-to-day operations.

In-store retailer insurance, known as shop and retail insurance, covers you, your premises or anyone working for you. Online retail insurance protects you with cybersecurity policies in the event your website gets hacked and/or you losing sales. More on that a bit later.

Some insurers cover both, for businesses that sell online and through a bricks and mortar establishment.

Read on to find out what you need in your retail insurance policy, plus what extras and restrictions you should look out for.

Which businesses does retail insurance cover?

It covers all sorts of physical and online shops, including:

• Butchers
• Greengrocers
• Hairdressers and nail salons
• Shoe shops
• Speciality shops
• Online stores

Depending on how flexible your insurance is, it could cover you if you’re opening a pop-up shop or market stall.

Why you need retail insurance

Retail insurance keeps you protected from unexpected incidents involving your products and services, your staff or even yourself. You must take responsibility for customers as well as your own employees.

It could be anything ranging from a slip on the floor to serious damage to a client’s property. If you’re covered, a retail insurance policy could save you from a hefty pay out leaving you out of pocket.  

Retail insurance is often bespoke, based on your needs as a business.

What is required by law?

Public liability insurance covers you if a client or member of the public claims to have been injured or have their property damaged as a result of your business activities. An example of property damage would be if you spilled something and it stained a surface, the wall or the floor.

Some trading authorities and other organisations may force you to have public liability insurance in place already. How much cover you’ll need is dependent on the size of your business, the risk factor of your industry, level of interaction with the public and your claims history.

If you have any employees, even seasonal ones, you need employers’ liability insurance. It covers you in the event that one of your employees makes a claim that they’ve suffered illness and injury as a result of working for you. It also covers legal and compensation costs involved. Be aware that the insurance will cover how many employees you have at any certain time. If you don’t have it, the Health and Safety Executive (HSE) can fine you £2,500 for each day you don’t have it, with a further £1,500 daily fine for not displaying it.

“You need to make an adjustment to your insurance to cover seasonal staff,” Ben Rose, founder of insurer Superscript, told Small Business. “Quite often you’ll be charged fees to make those adjustments.”

“The insurance industry typically package products together, but generally speaking, those products that are intended for anybody will include loads of covers, which might not necessarily be relevant to the insured,” he adds.

What other cover might I need?

Stock and contents cover is another consideration to make and is often bundled in retail insurance policies. Contents can include fit out, tech equipment such as point of sale while stock applies to the stock that you sell to customers such as food or furniture.

There may be extras depending on what sector you work in. For example, certain hair and beauty treatments. “Generally speaking, you need to check with the insurer or ensure that you specify each of the treatments that you’re performing in order to cover to extend to those treatments,” says Rose.

Additional cover for road accidents and incidents around delivery including theft, damage and other accidents. However, you would need specific insurance for instances which involve a vehicle.

For a physical retail store, glass cover is often overlooked, covering windows for vandalism and other malicious damage. “Cover for your shopfront and your signs and your shop fittings are not going to be covered by a generalist business insurance policy,” says Rose. “You kind of need to make sure that you’re buying one which is designed for a shop in that case, with those kinds of features included within the policy.”

For those running multiple types of businesses on the same premises, ensure that both business activities are covered. “We’re finding that quite often, you might have a clothing shop, which also has a barista in it, or a different kind of shop, doing nails,” says Rose.

“Just having a clothing shop is probably on your cover. You might not be covered if there was a claim related to somebody burning themselves on a hot coffee or whatever the case might be.”

Be mindful of how your stock gets to your customers. Businesses who do deliveries will need cover for when their stock is out on the road too.

Product liability insurance provides compensation claim cover if someone is injured or their property damaged by a product you’ve sold.

Business interruption insurance will cover your firm in the event of natural disasters, acts of terrorism or a global pandemic. It’ll help make up for lost revenue, lost rental income and other costs.

Online retail insurance

Though there are a different set of potential issues in an online shop compared to a physical shop, online stores and their goods need to be protected.

You won’t necessarily have the customer interaction that you’d have with a bricks and mortar retail business, but it’s not as if you won’t come into contact with anyone. You may still interact with couriers and suppliers – and things can still go wrong. That’s why you still need public liability insurance even though you’re not interacting with the public face-to-face as such.

Online retailer insurance needs cyber cover too to protect your business against fraudulent payments, cyber attacks and the loss of your customers’ personal or financial data.

Contents and stock (against theft and damage) is often included in online retail insurance policies alongside business interruption.

“Typical business interruption insurance covers losses of income as a result of physical damage to the shop,” says Rose. “But selling stuff online, there’s no physical damage to your website that might go down, but you might still suffer loss of sales as a result of that.”

He suggests looking at things like Trustpilot reviews to help you make the decision as to who to have your insurance with.

Will home insurance provide cover if I run my business from home?

It depends on your home insurance policy, but it is unlikely that your business assets will be covered by your home insurance. This applies to any of the commercial stuff you have at home, such as computer equipment.

Remember that people visiting your home – clients, customers receiving treatments – will need to be covered too.

Another consideration is storage of stock. Insurers may have varying security requirements. A certain type of lock or security system may need to be in place otherwise a claim you make could be null and void. “If you’re holding on to a bit more stock, and particularly if it’s a home, just storing it in your garage or your shed, might not be sufficient security for it,” says Rose.

“Quite often policies have conditions in there relating to storage of stock, particularly when it’s in a cellar or possibly a garage. For example, just storing your stock on the floor of a garage might not satisfy the insurance requirements, they might want to know that is raised up off the ground in case the garage floods.”

What restrictions do I need to be aware of?

Ensure you comb through any policy you come across. A key attribute to look for is flexibility, with the option to add or remove features as the needs of your business change. The need for flexibility has become more prominent over the past couple of years, with shops opening and closing and having various restrictions to abide by. Temporary sites – pop-up shops, market stalls and mobile kiosks – are also increasing in popularity.

That’s before we even address the changing way that customers shopped pre-pandemic. “It’s probably not a secret that many insurance policies out there were written a really long time ago,” says Rose. “The high street has changed over that period of time, with people selling online as well as in bricks and mortar retail.”

Watch out for restrictions on business activities too as something that is central to your business might not fit your insurer’s brief. “Many insurers are going to be reluctant to insure people doing deep frying, or if they do, they’re going to want to make a lot of conditions around needing to have it,” says Rose. “Other examples, there are things like an antique shop – how do you value all of the stock that you have? Is it what the person pays for the stock or is it the actual value of it at sale? Who’s going to determine the value?”

Philip Dawson, managing director of lab-grown jeweller Lily Arkwright, tells Small Business how he found his retail insurance.

Philip: The most specific insurance for us guys was the specific insurance in terms of jewellery cover. Alongside that is cyber insurance. So, it’s a bit of a black hole. You first start looking for insurance for the public and employers’ liability cover and stock cover and then before you know it, there’s cyber insurance. It’s quite new as well now, and because we’re an online retailer, should anything happen like hacks, we need protection.

Though we had to overlap policies because we had an existing policy, which was for public liability and employee liability insurance. We’re now at year six of our business. So, we kind of got to a level where we had to move away from a policy which covered us to an extent, sort of stock levels of stuff, which was non-specific, over to a specific jewellery broker policy, due to the amount of stuff that we had.

We covered it all with the same insurance broker, whereas the year before, we had to let the existing public liability and the employers’ liability carry on and in-between that, before the policy ended, we had to get the specific jewellery cover as well, because we got to a certain point where we weren’t covered for diamonds and jewellery on the premises.

It must have been quite difficult as some insurers don’t offer cover of a certain value of stock.

Philip: Yeah. It is. We found ourselves in a position where we were no longer covered because of the excess stuff that we were holding on-site. We queried it with our existing policy, and they confirmed that we wouldn’t be covered. And then with the business growing, and obviously more people in the showroom and more visibility, that’s always a concern.

So that’s when we had to reach out to a specific broker, a company who specialised in jewellery, and they were literally the only company in the UK who could cover. It is never nice to go to only have one broker to go to, because they have a bit of a monopoly. Then alongside that, we found there’s a lot more stipulations that you have to comply with. For example, having a bit of a grip of the UK jewellery sector, you have to ensure you have the adequate cameras, adequate security and your windows and the doors and the shutters and an adequate safe which is certified to a certain level. We have to take it upon ourselves, which was a good check anyway, to really make sure that we were compliant. Otherwise the insurance cover would just be noise anyway.

With the policies that your broker found, did you find there were restrictions within those that were limiting to you beyond stock value?

Phil: We’re partly an e-commerce company, we post to our customers 95 per cent of the time, some customers do come and pick up items in the showroom. You have to ensure you’ve adequately forecasted out your value that you’re going to pass out to your customers in that given year. And, of course, ensure that you have a quite a good gauge of the amounts, or values, that you’re going to pass out to customers. And so as long as you do your research beforehand and you know where you stand with your stock levels, and your average order values, you’re okay.

In some instances, we have orders that just have excessive value that will not be covered by our insurance. So, we do have a separate policy that we can take out for individual orders which have a large value, which we do from time to time. It’s a bit funny when you almost go from your basic insurance cover, which I think most places have. So our specialist cover saw the trade that we operate within, and then alongside that, we sometimes do lean upon a specialist broker because we do deal with quite high order values. In some cases, they would not be covered by our existing policy.

So it’s good to get a catch-all in some cases, because of course we could have notified our insurers, and they look and we are posting, for example, an average order value, maybe of a couple of thousand pounds. If we then go and post a £65,000 order, that’s not going to be covered. Now we could insure for that, but that wouldn’t really be cost-effective for us because that isn’t the norm if you like, so you almost find ways of dealing with it, which is what we’ve done so far.

And I think what you may well find with a lot of retailers, if it’s a low value business, people work with it. The UK’s got so many good postage options: Royal Mail is brilliant; FedEx; UPS. But if you then want to post to Europe, and you have a high order value as well, every single courier will limit you on your insurance options. And that’s where you have to lean back on your policy again. It’s almost like, in a perfect world, you just have one policy, and that will just cover you for your business, for your staff, for the client, on new stock. It’s never that simple. And in most cases, as well, because we produce our own goods in the UK. They produce them at the point of sale usually. We do hold stuff, but we’re trying to limit that to some extent. And we try and turn around quite fast as we don’t have to hold on to stuff.

We’re very e-commerce friendly. And I think we all grew up in a demographic where people are happy to shop online. And that certainly gave us a big advantage because you can work your business around to some extent, whereas I think we find with a lot of jewellery retailers in the UK, specifically a family jeweller, so retailers on the high street, they will hold huge amounts of stock, they will buy in bulk and expect customers to come to them. Obviously with a pandemic that only accelerated the trend to online shopping, which is a subgroup anomaly in the past few years.

We have a mix of readers who will want to seek out insurance policies themselves with some who want to go to a broker. What kind of advice would you have for small businesses who are approaching a broker like you did?

Phil: Oh, definitely go to a broker. So, obviously, if you have a niche business you might look at, we have to seek specific jewellery insurance. And that includes cyber insurance. But if you are probably perhaps a more standard retailer, which does not specialise in maybe high value orders, particularly, if you go to a broker, it’s almost a bit similar to your home insurance. We found going by a broker gives you a much better range of options. And obviously, you can then decide which one suits you best.

So, you would probably want to have an idea of your stock value and what you would need from an online policy before you approach the broker.

Phil: The really obvious one to have is you need to know what your turnover is. You need to know what your average order value is, which is really important, you need to know a rough idea of quantity. Divide the two together and you get an idea of your amount of orders as well. So now they’re all sort of obvious ones, because from those, you can work out how many packages you will send per year and what the average order value is for those packages. And then your insurer will have a really good idea of what sort of cover you’re going to require.

Alongside that, if you do have peaks and troughs in your trading, like reaching your Q4, you could find yourself probably not adequately covered. So, if you find yourself in a position where the average order value goes up, for example, if you can negotiate with your insurer, don’t just wait it out. Because what if something was to happen and you’re not covered? Always, always speak with them as well, because in most cases, they are really chatty. It’s probably a common misconception that insurance can be boring, but we found them to be very helpful.

Maybe just one piece of advice that is particularly sort of more relevant to online retailers. Do consider your security and your cybersecurity. Because it’s only going to go one way with cybersecurity where people are getting targeted. We’ve been targeted before by hackers and spammers and all sorts of stuff. We have policies and procedures in place to deal with that. It’d be horrible to see another retailer be targeted and be hurt by that because you have websites that do go down, and people have to pay sums of money to get them back online. There’s also obvious stuff you can do with backing up data and whatnot, make sure you do GDPR compliance with the customer.

At a normal retail store, if you have an issue, you have a water leak or whatever, you can get back on your feet very quickly in most cases. Whereas if someone takes down your website, that’s it. It’s not a quick process to reboot. That’s one thing I would advise. Have a look into cyber insurance policies as well because that helps you sleep at night.

Where do I find retail insurance?

You can find retail insurance through an insurers website online or through an insurance broker. A lot of the larger insurers offer cover but don’t forget about smaller firms who may be able to give you more specialised retail insurance too.

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