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Posted in: Business Insurance
By Rowlands & Hames - 27 April 2015
Around 60% of UK SMEs expect to be exporting by 2016, according to a recent YouGov survey of 2,000 SMEs; and George Osborne is hoping UK exports top £1 trillion by 2020.
Research by Zurich Insurance also suggests that unlike many European competitors, UK SMEs are increasingly looking beyond the domestic market. Zurich’s 2014 SME Survey found that 13% of UK SMEs expanded their activity to new markets last year, compared to 11% the previous year.
Correspondingly, the number of UK SMEs who reported expanding their activity to target new domestic customers fell from 29% to 22%.
For SMEs, the undoubted benefits of tapping into new markets must be weighed against the risks, which can vary hugely from sector to sector. There are a variety of different insurance considerations for manufacturing, retail and professional services businesses to consider:
A key consideration for manufacturing firms looking abroad is the product safety and quality legislation in the countries they are exporting to, and whether their product liability insurance provides appropriate cover. When exporting you need to consider the consequences for each country if your product caused a local injury.
Product liability can apply to manufacturers, retailers and distributors, and there have been numerous examples of courts successfully prosecuting foreign companies for products manufactured overseas. For example, the family of a child from Wisconsin, USA, who was severely burned while wearing a highly flammable shirt made in Hong Kong, won an £880,000 settlement from the manufacturer.
Even before a product reaches its export market, it is likely to be subject to a wide range of safety regulations.
For example, certain products being exported within the EU must carry a CE mark – which is proof they meet a set of European directives – but the specific requirements for CE can vary significantly from product to product. Additional export licences are required when exporting many types of goods outside the EU. UK Trade and Investment offers country-specific advice to companies planning to export.
Another important consideration is design responsibility. Manufacturers should be asking themselves if they have accepted any design responsibility for the way a product will be used – and if not, whether this has been explicitly excluded from a contract. For example, a manufacturer exporting car parts may have an implied responsibility to supply parts that are fit for their intended end purpose, unless a contract expressly only requires that they have used reasonable care and skill.
Product liability insurance can provide cover for accidental damage to people and property, but it will not protect a manufacturer who has supplied a product not fit for purpose; nor will professional indemnity insurance. As well as facing a potential claim for a breach of contract, a manufacturer found to have produced a product not fit for purpose could suffer loss of reputation in a valuable new market.
Rowlands & Hames can play a crucial role by providing the right specialist advice, which can help mitigate the risks that exporting could expose you to.
2. Internet retail
Cyber risk is a particularly important consideration for online retailers, who are likely to keep large amounts of personal information about their customers, including passwords and other sensitive data.
More and more countries are introducing Mandatory Data Breach Notification laws, but who these laws apply to, and how they are enacted, varies.
For example, within the EU, for most data breaches, companies are only compelled to notify their relevant national data protection authority that a breach has taken place. However, where a data breach affects somebody’s privacy, companies have to notify the victim of the data breach personally. In the USA, each state has its own data notification requirements and penalties for failure to comply with them.
Online retailers should not assume that other countries’ data protection rules don’t apply to them. National authorities across the globe are increasingly joining forces to protect and enforce their own country’s data protection laws. For example, Canada and the Netherlands carried out a joint investigation into the mobile text messaging service WhatsApp over alleged privacy breaches.
Notifying those whose data has been breached can be costly and time-consuming for SMEs – this is something cyber liability insurance can protect against. Companies should ensure they have clear and robust strategies for dealing with scenarios including a breach or theft of data, and that they have appropriate cyber liability insurance in place.
Rowlands & Hames can help their customers by explaining the types of cyber liability insurance cover available. The level of cover needed may depend on the nature and quantity of the data companies hold or share with third parties, e.g. is it financial, medical, or in some other way sensitive, which all need to be considered.
3. Professional services
The current Government sees the exporting of professional and business services such as law and insurance firms, as one of the UK’s success stories. According to a 2013 Government report, the UK’s professional services sector has a share of exports to developed countries second only to the US and a trade surplus of £19 billion. Less has been said about the challenges of exporting professional services.
One of the biggest barriers is regulation – in a 2014 British Chambers of Commerce survey, UK service sector firms said the biggest barrier to them exporting was excessive overseas regulation.
There are a number of other risks which could have insurance implications.
Rowlands & Hames role as brokers is not just limited to ensuring our customers understand the scope and limitations of their professional indemnity insurance. With a clear understanding of the way our customers operate, and what their exporting ambitions are, we can play a crucial rule in helping them manage their risks and reap the benefits of lucrative new markets.
Rowlands & Hames would like to thank Zurich Insurance for this article.
Tagged with: Exports