Whether you’re just starting a vape business or you’re already running one, you have a million things to think about, and it can be easy to neglect insurance.
But it’s essential to think about.
After all, what would you do if:
- an employee brings a discrimination claim against you?
- you are sued by one of your customers?
- your shop burns down?
- the cargo of vape hardware you ordered slipped off a ship and disappeared?
There are also specific pitfalls to avoid. For example, some vape retailers have been sold insurance that didn’t cover vaping.
Insurance can be a complex area, so we reached out to Mark Stevenson from insurance brokers Anthony Jones to put this guide together. Anthony Jones has been specialising in vape insurance since 2013. They’re also associate members of the Independent British Vape Trade Association (IVBTA), and they’ve been providing us with both advice and our own insurance for the last eight years.
As a vape retailer, you are involved in a relatively young and dynamic industry. The products that you sell are innovative, have unique characteristics and are often misunderstood. That presents challenges when it comes to insurance.
Many in the insurance industry, unfortunately, compare vape products to smoking or tobacco products. For decades now, manufacturers of tobacco products have not been able to obtain Product Liability insurance. Regrettably, insurers take a similar view to both manufacturers and retailers of e-liquid products.
Many insurers do not have the correct, or any, classification for vaping. In fact, many vape businesses who think they have coverage - don’t. That’s down to misclassification of their business in their policy.
For example, we have seen many vape retailers classified as a Newsagent or an Electronics Retailer, often because the insurer does not have “vape retailer” in their internal classification or listed on their website. If there is a claim and the insurer finds that the classification is wrong, they are likely to decline the claim through misrepresentation.
If they are to sleep soundly in the knowledge that a claim will get paid, it is vital that vape retailers take time to consider both:
- the risks they face
- the insurance coverage in place
Risks To Consider
Some risks should be viewed very carefully as they can destroy the business if adequate protection is not in place. Most insurers offer a “package” insurance product that will encompass cover for these key risks.
Whilst working in a shop is a relatively low risk activity, by law, you are required to purchase Employers Liability insurance. This insurance will indemnify the business against your liability to pay damages arising from potential employee illness or injury. The policy will also pick up the legal defence costs.
As part of general good management and to meet regulatory requirements, if you have 5 or more employees,you need to undertake risk assessments of the risks to staff, and others, in the work environment. Then you should document what you are doing to minimise these risks, including staff induction, training and procedures. Documentation like this helps to defend a claim should an accident happen.
Public and Product Liability for Vape Products
This insurance is usually purchased with Employers Liability and protects the business against claims for injury, illness or damage to third parties and their property arising from your business. Examples include:
- customers falling over or injuring themselves in the shop
- the explosion of a vape device that you have sold to them.
There are two key points to bear in mind:
1. Ensure that you know the source of all products that you stock / sell and that they are EU and TPD compliant. This means that they are quality controlled and regulated.
2. There is an extremely restricted insurance market in the UK market that will provide full Products Liability coverage for claims arising from the sale or supply of e-liquids.
The vast majority of vape retailers will not, in practice, have Products Liability cover for the liquids that they sell. Documented supply chains and knowing the source of these products will enable you to pass any claim up the line to the supplier.
Property insurance is probably one of the most important covers a business can buy. It protects you against damage caused by:
- escape of water
- riot and vandalism.
Cover can be extended to provide ‘all-risks’ protection against accidental damage such as glass breakage.
You can make a claim on your property insurance if your buildings, contents, machinery or stock are damaged because of an event covered by the policy. Theft, fire and flood are the most common types of claim. You can also buy insurance against acts of terrorism to sit alongside your property insurance cover.
As the stock is attractive to potential thieves, most insurers will expect you to install adequate theft protections, including a NACOSS approved alarm system.
Business interruption insurance covers you for loss of income during periods when you cannot carry out business as usual. This can be due to damage caused by a specific set of perils that are detailed in your policy.
It aims to replace certain financial losses sustained by the business during the period of the disruption when you may have reduced turnover. Cover can include losses following damage to your premises caused by incidents such as a fire, flooding or other physical damage.
The amount of cover you need will depend on the amount of time you think it will take for your revenue or turnover to recover to the level immediately prior to the loss. This is called the indemnity period and it is very important to get it right. Most policies offer 12 months as standard. This may not be sufficient so think about 18 months or even 24 months.
Having adequate cyber insurance has never been more important. Cyber crime has been increasing and the Covid-19pandemic has led to a huge increase in the number of cyber attacks on UK businesses.
Information technology (IT) plays an increasing part in all businesses. By using IT as part of your business, you will be exposed to the risks of business interruption. This includes income loss, damage management and repair, and possibly reputational damage if IT equipment or systems fail or are interrupted following a cyber attack.
There is also the risk of cyber crime, such as “phishing” or ransomware, which are increasingly a day-in day-out problem. Having expert advice around the management of an incident itself is absolutely critical when faced with reputational damage or regulatory enforcement.
Directors and officers
Directors and Officers liability insurance (D&O) is specifically designed to protect the directors, officers and employees of an organisation. The insurance covers defence costs and awards made against senior employees following claims arising from actions undertaken in their capacity as a director, officer or employee.
The Limited status of a company may not eliminate individuals from claims made against a company. It is not unusual to find directors that are under the impression that their limited status covers them so they do not need Directors and Officers insurance cover. Directors should not rely on the company indemnifying them. Without the protection of D&O individuals are putting their own personal wealth and belongings at risk.
There are various different acts, rules and regulations that companies have to adhere to. As a consequence, there are a raft of people able to press claims – namely regulators, creditors, employees and shareholders. Claims to the fore would be across:
- Health & Safety
- Bribery, corruption and fraud
- Sexual, racial or age discrimination
- Wrongful dismissal
- Wrongful trading
- Financial reporting
- Competition law
- Breach of copyright
- Cyber and data Protection
- Unpaid taxes
- Environmental damage
Employment practices liability insurance
This cover is often bought alongside a Directors and Officers policy. It pays the costs you might need to pay to defend you and your business against claims brought against you by employees or former employees for:
- misconduct in the workplace (harassment and bullying for example)
- wrongful dismissal.
These claims have increased significantly in recent years as disgruntled employees seek redress through the courts.
This protects your business against an employee stealing money or stock from you. It may be especially useful if you have a lot of temporary or seasonal employees or a high workforce turnover.
Personal Accident and Sickness
The policy can provide cover in terms of a monetary benefit payable as either a fixed sum or a multiple of salary, payable for a specified period following an accident or illness. Cover can be payable on death, or permanent or temporary disability that prevents all or some of an employee’s work being carried out.
Increasingly used and very popular with small businesses, this insurance covers the cost of pursuing or defending a legal action that wasn’t insured by a more specific liability policy. This cover often provides a useful legal helpline as an additional service.
There are many other types of risk and insurance but above we have highlighted the more obvious ones to consider. Having undertaken a risk assessment of the hazards to the business, both types of incident and their likely impact, it is then important to construct a Disaster or Business Continuity Plan.
This documents the actions that are to be taken and by whom as a response to a major loss.
The purpose of this is to react swiftly and with direction to minimise the loss and disruption and to get the business back up and running as quickly as possible.
Disaster plans should be shared and discussed with all senior people and kept in a readily accessible place. We also recommend that plans are periodically tested, as far as practicable, to ensure that they work as intended and that relevant staff are familiar with them.
Your duty of disclosure
When you apply for your insurance – whether direct to an insurer or via an insurance broker like Anthony Jones – it is very important that you give them all the relevant information about your business.
If you fail to do so this could affect a claim or your cover going forward. This is called your duty of disclosure. This is contained in the Insurance Act 2015 which was brought in to give clarity over what you must disclose and what your obligations are to your insurer in order to present your risk fairly to them.
The key points to note are:
- The insurance customer must make adequate enquiries within their business to identify and verify information relevant to their insurance risk(s) concerned.
- The enquiries must include all relevant knowledge of the ‘senior management’ of the business and those involved in buying the insurance (including your broker if you have one).
- Reasonable enquiries must also be made of any relevant third parties involved with the business, including external consultants, contractors and anyone insured by the policy.
- Your application for insurance must be clear so that the insurer can take a view on the insurance risk.
You must also adequately highlight unusual activities and/or known areas of concern that could affect the risk.
The duty of disclosure is a continuous one and so also applies to any changes in your business after you buy the policy. For example, if one of your premises becomes unoccupied, then the risk from escape of water, vandalism or other perils increases and the insurer will want to know about this change.
In such circumstances, insurers usually allow the premises to remain unoccupied for 30 days after which they may restrict coverage, impose certain new conditions such as requiring the property to be inspected every seven days or require an additional premium.
Many thanks to Anthony Jones for providing this guide. Setting up a vape business can seem daunting, so for more tips and advice see our complete list of guides, or sign up to an Orderly account here to get 10% off your first vape wholesale order.