Small business insurance – why you need it

Every business is unique, and the requirements of suitable business insurance are just as unique as each business. Using a case study, this article analyses the many insurances available and highlights the importance of seeking professional advice when acquiring cover for your business.


Small business insurance – why you need it

Several years ago, Steve and Brian started a small web-design business, GotyaOnline. Steve was responsible for growing and supporting their client-base, while Brian designed and built the websites.

Expanding to include maintenance of client databases and online shopping facilities, they bought new technical equipment and rented office space.

Recognising the importance of insurance, they sought professional advice about suitable cover for a small business like GotyaOnline.

Uppermost in their minds were the different kinds of losses they needed to insure against, such as:

  • Property/equipment damage or loss
  • Loss of Key personnel
  • Cyber attack and ransomware

Any of these events could potentially lead to business interruption, security breaches and reputational damage, all of which may expose GotyaOnline to legal action.

With assistance from their planner, Steve and Brian conducted a business risk analysis and considered the following insurances:


Property and assets cover

GotyaOnline owned state-of-the-art equipment to manage its clients’ online operations. Property and assets cover would insure against equipment damage or loss resulting from fire, flood, theft, etc., the kinds of events that could potentially lead to business interruption and GotyaOnline being unable to fulfil business commitments.


Revenue insurance

This cover helps support a business experiencing loss of revenue or profits resulting from an event causing computer failure or business interruption. Cover is in the form of compensation to help keep the business operating during prescribed hard times.


Key person insurance

Steve and Brian are both integral to GotyaOnline’s operations and client account management. If either was unable to work due to illness or injury, the business could suffer considerably.

Insurance provides financial support enabling the business to engage suitably qualified people and systems to minimise the impact to GotyaOnline and its clients.


Professional indemnity

This protects Steve and Brian against liability for damages, occurring in the course of their business, and the costs associated with defending legal claims brought against them by clients.


Shareholder insurance

This specific type of life cover protects shareholders if something were to happen to one of them. It provides a lump sum payment enabling the surviving shareholder to purchase the other’s shares, at a previously agreed price.

It offers surety for an effective business succession plan if one of the partners was suddenly out-of-the-picture through death or disability.


Cyber insurance

This covers a business’s liability if subject to a data breach involving sensitive customer information, names, addresses, credit-card details, etc.

With more businesses storing data ‘in the cloud’ and functioning online, this form of insurance is increasingly relevant.

Steve and Brian’s adviser assisted them in understanding their risks and developing a contingency plan that included an insurance portfolio tailored to GotyaOnline’s specific requirements.

When a neighbourhood power surge knocked out GotyaOnline’s systems, it caused physical computer damage and disabled web-connectivity. Besides GotyaOnline being offline, its clients couldn’t access customer databases, potentially exposing GotyaOnline to legal and reputational damage.

GotyaOnline’s insurance provided financial support to quickly restore the business’s online connectivity, and replace damaged equipment. Within 24 hours, GotyaOnline was returned to operation with minimal interruption to the business or its clients.

Every business is different and no one solution covers all. If you’re uncertain about insurance, speak to a qualified professional and get the most appropriate cover for your business needs

Positioning your portfolio in turbulent times

As any experienced investor knows, all investment markets have their ups and downs. Regardless of investor experience, turbulent times are a cause of anxiety, and that can lead to poor decision-making.  So if turbulent markets are inevitable, even if their timing is not predictable, how should portfolios be positioned in anticipation of, and in response to market volatility?

What’s your objective?

First up, it’s important to go back to your investment objective. Is it to grow wealth over the medium to long term? Or are you more concerned with preserving capital? Your objective also needs to take account of your risk profile. How would you feel if, for example, the value of your portfolio dropped by 20%? Would it lead to you moving out of volatile investments such as shares, or would you see it as an opportunity to pick up some quality shares at a discount?

With your risk tolerance and objectives clarified, it’s time to get to grips with asset allocation. This is the process of deciding what proportion of your portfolio will be allocated to each of the major asset classes: cash, fixed interest, property and shares. Some investors will also allocate some funds to investments such as gold and absolute return funds – managed investment funds that seek to make a profit from both rising and falling markets.

Asset allocation is the engine room of your portfolio. The amount that you apportion to the major asset classes has the biggest effect on your portfolio performance. It has a greater bearing on your returns than individual asset selection.

Asset allocation is also your key risk management tool as it determines the level of diversification across asset classes whose values may move reasonably independently of each other. The more you allocate to shares and property the greater the volatility, and therefore the risk. However, in this context, risk isn’t always a bad thing. A higher risk portfolio may at times fall more in value than a lower risks portfolio, but over the long term it is also more likely to generate higher returns.

Oops, too late

Unfortunately, the motivation to position a portfolio for turbulent times is often a sudden downturn in investment markets. But this doesn’t mean it’s too late to do anything. If your investment objectives and risk tolerance haven’t changed, rebalancing your portfolio (i.e. bringing the asset allocation back to its ideal position) may help to position your portfolio for the next upswing in investment markets.

Waiting out the storms

While positioning can help with portfolio risk management, many investors opt to wait out any storms. Why? Because for all the ups and downs, bull markets and bear markets, bubbles and crashes, major share markets have delivered solid long-term growth. In fact, it has been claimed that investors have lost more money trying to anticipate corrections than they would have lost in riding out actual corrections.

A professional approach

Concerned about the financial outlook and your portfolio’s current position? A Bridges financial planner can, help you identify your objectives and understand your risk tolerance, and recommend investments to help you weather the turbulent times.