Business insurance protects businesses from financial losses caused by customers who don’t pay, property theft or damage, liability, harm to reputation and risks affecting workers.
Some business insurance is compulsory in Hong Kong including some liability insurance and work injury compensation.
Why do I need business insurance?
Even the most successful and profitable businesses can suffer ill fortune through no fault of their own. In the worst-case scenario, a serious hit could cause an uninsured business to go under. The ‘hit’ could be a fire that destroys your manufacturing base, a costly malpractice suit, or a major customer that unexpectedly goes bankrupt causing a big hole in your balance sheet. Business insurance can help mitigate any of these risks and could help you pick up most of the pieces and carry on.
In some instances you need business insurance because it’s the law. In Hong Kong, providing work injury compensation cover for employees is compulsory, so is commercial auto insurance and, in some circumstances, third party liability insurance.
In addition to your legal obligations it’s a good idea to assess your business and identify the cover it needs. In most cases these comprise five areas:
- Commercial debt
- Property damage or theft
- Employee protection
Learn more about the types of business insurance used by small businesses.
How business insurance works
Assess your business needs. Think about whether you can absorb some losses. In most cases it is best to think about this in terms of business interruption. If you can afford to replace something without it impacting on your operation, you probably don’t need to insure it. But if something is too costly to replace, or would prevent you from normal operation if you had to divert funds to replace or repair it, insurance would be a good idea. Remember to consider everything – not just equipment. A big hole in your income can be just as damaging as a big hole in an item of costly equipment. Failure to get compulsory cover can also be expensive. You may receive a fine and may experience damage to your reputation.
Seek advice and shop around. Don’t be afraid to ask insurance brokers and insurance companies how they can best support your business. By the nature of their work, underwriters should be experts in your market and should understand exactly what you need and how their products can support your business. Make sure they tell you and, if they can’t, find an insurer who can. This includes a frank discussion of the small print – are there exclusions to your policy that you would rather have included?
Check you’re meeting your legal obligations. Your insurance company or broker should explain what insurances are compulsory for your business and any updates to the law.
Take out insurance cover and keep your relationship going. After shopping around and finding the right cover and insurer for your business the next step is to buy insurance. However, don’t just stop there. Markets evolve, laws change and your business will develop. Your insurer should be sensitive to this and keep an ongoing and open dialogue with you, suggesting changes to your level of cover as needed. If your insurer simply expects you to pay their bill without understanding your needs it’s time to ditch them for someone who makes the effort to work more closely with you.
Choosing the right corporate insurance
Size (and substance) matters. If you’re running a small retail business your insurance needs will differ from a large manufacturer. Most insurance providers will tailor different packages to suit your individual needs. At Atradius, we offer a modular approach to credit insurance, which allows us to create the exact level and type of cover you need.
We develop tailored credit insurance solutions for businesses of all sizes from SMEs to global multinationals. We insure businesses that focus on domestic trade only as well as those that export and trade internationally. Multinational corporations use our products and businesses that need to insure long term projects with non-cancellable limits.
Business insurance: not just about preparing for the worst
While a key aim of insurance is to offer you a safety net if things go wrong, this isn’t always the only benefit of insurance. Take trade credit insurance for example. Designed to protect your business from commercial debt caused by the failure of your customer to pay, it can also bring commercial advantage. With the security of a credit insurance policy, you can adopt a more aggressive sales strategy and benefit from the increased profits this may lead to.
Credit insurance can also be valuable when it comes to investing in your business. This is because investors and lenders will look upon your business more favourably as – with your accounts receivable covered by your insurer - you will carry a lower credit risk. As a result, larger loans and more attractive rates may open up for you.