The Hidden Danger for Tradesmen: Navigating the Risks of Underinsurance

Underinsurance is a silent killer in the trades industries, picking off small businesses like minnows in a shark tank.

But what is it? Underinsurance is essentially when you don’t have enough insurance in place to cover potential losses. It poses a real threat to your business’s bottom line and could even see your business go under should a claim be made against you.

Worryingly, thousands of tradespeople in the UK are underinsured, but don’t panic – Rhino are here to help. Join us as we delve into the meaning of underinsurance, and how you can prevent it happening to you.

Defining Underinsurance in the Trades Industry

When someone is underinsured, it means that their current insurance provision is inadequate to cover the likely risks faced by their business. So, if the cost of settling a third-party or insurance claim is greater than the indemnity limit on your policy, then you’d have to pay the difference yourself. 

This is a serious concern for any small business owner. Depending on the type of claim, the cost of defending and settling liability or indemnity claims can be through the roof. For example, it’s not unusual for public liability claims to exceed £1million. Countless small trades businesses have had to shut up shop because they’re hit by an unaffordable insurance claim.

How Common is Underinsurance Among Tradespeople in the UK?

According to the British Insurance Broker’s Association, underinsurance is present in around 35-40% of insurance claims. This means that over a third of people making insurance claims are hit with the news that they have insufficient insurance to cover the cost of the claim on the policy they hold.

That figure could be even higher in the trades industry. Not everyone prioritises business insurance in an effort to save a few quid upfront, but you don’t need us to tell you that this could mean that the cost down the line will be far greater. 

Identifying the Risks of Being Underinsured

As we mentioned, going underinsured is a silent killer. You may not notice it until it’s too late. Here are some of the key risks you face when going underinsured in the trades industry:

• Financial instability

Without the correct level of insurance cover for your business, you’ll find yourself having to cover the cost of any shortfall yourself when you’re hit with a claim. This means that although you may be insured, your insurer will only partially cover the amount of the claim – you’ll have to come up with the rest.

Unsurprisingly, this would lead to financial instability for most small businesses. Liability and indemnity claims can come out of the blue and there’s not usually any time to raise the finance needed to defend and settle the claim. 

• Relying on bailouts

Not having enough Personal Accident cover or Income Protection Insurance as a self-employed tradesperson means that if you need to take some time off to recover following an accident or illness, your insurance may not cover your period of recovery and you may need to rely on family or friends to keep you afloat financially.

• Legal implications and liabilities

If you’re found to be liable for an incident (for example, causing an accident to a member of the public while you’re on a job) then you’ll likely be found legally liable. If your insurance doesn’t cover the full amount of a settlement claim, including compensation to the injured party, then this could have undesirable legal repercussions.

• Reputational damage

In the trades, reputation is everything. So, if you are unable to meet the costs of a liability or negligence claim made against your business, your reputation is going to seriously suffer. You’re not off the hook if you can’t afford to pay – it will just take longer and cause you a huge amount of stress.

• Stress 

Speaking of stress, don’t underestimate how much the stress of an unaffordable insurance claim can affect you and your family. A tradesperson with adequate insurance cover doesn’t need to sweat should a claim be made against them. Similarly, if you’re in an accident and need to take time off work, being adequately insured will mean you can relax and focus on your recovery.

How to Determine Your Insurance Needs

So, how can you secure sufficient protection? Here are a few strategies to get you going:

• Consider the risks you face

If you work in the trades, the chances are you’re dealing with plenty of occupational hazards on a daily basis. You should consider the risks you face, and the likelihood of something going wrong. This will help you identify where your weak spots are and help you select insurance policies accordingly.

For example, if you deal with tools, electrics, water, ladders, or building materials, work at height, dig trenches, handle heavy objects or use heavy machinery, you are at a high risk of causing injury to yourself or others while on a job. This should be reflected in insurance policies such as Public Liability Insurance and Personal Accident/ Income Protection cover. If you give professional advice (e.g., in your work as a building contractor or chartered surveyor), then Professional Indemnity Insurance would come in handy. And if you rely on tools to earn your daily bread, it makes sense to insure them with a Tools Insurance policy.

• Choose a generous policy limit

Each policy you take out will come with a choice of cover limits. The limit that’s right for you will depend on things like the size of your business, the type of work you do and the number of employees you have. For example, if you are a small business with three employees which owns some pricey power tools, you may choose £5million Employer’s Liability Insurance, £10,000 tool cover and £10millon Public Liability Insurance. 

Your premiums will be higher if you choose a higher cover limit, but you’ll also rest assured that your insurance will be more than enough to keep your business protected and cushioned no matter what the harsh world has to throw at you. 

• Check your provision

You may think that you’re fully insured, but are you? Don’t let it get to the point of making a claim to find out that your policies no longer cover your business’s requirements. Things like an increasing annual turnover, new recruits, taking on extra duties and even moving premises can all cause gaps in your insurance provision.

Check your policies regularly (at least once per quarter) to make sure that they’re still valid and adequate for your business’s changing needs. 

• Speak to an expert 

To make sure you’re not one of the thousands of tradespeople going underinsured in the UK, speak to Rhino Trade Insurance. We insure tradespeople for a living, so we know everything there is to know about the risks you face in your particular trade. From plumbers, electricians and bricklayers to fencing installers, gardeners and gas engineers – our team will be able to take one look at your unique business information and advise you on the policies and cover limits you need to stay protected.

Call us on 0116 243 7904 today. If you’d rather get a quote immediately, head to Rhino’s smart quick quote engine to enter a few details about your business and get your quote in an instant.