Like all businesses, a salon must have insurance to protect it against the unexpected losses that can occur. There are many risks that businesses face and, although these can be managed to some extent to reduce the probability of those risks leading to losses and minimising the magnitude of any losses that do occur, some losses are inevitable.
Given this, a salon insurance policy must have:
- Property insurance to cover accidental damage to its buildings, contents and other business property or loss of that property due to theft
- Employer’s liability insurance – a legal requirement – to cover compensation claims made against it by its employees
- Public liability insurance to cover compensation claims made against it by members of the public
- Products liability insurance to cover compensation claims made against it that have arisen due to a defect in a product that the salon has sold or supplied
- Legal expenses insurance to cover unexpected legal bills if it becomes involved in legal action
- Personal accident and sickness insurance to protect the salon owner’s income if they are unable to work either temporarily or permanently, due to an injury or an illness.
However, salons aren’t the same as other businesses and, due to the unique nature of the services that they provide, they face some additional risks. This means that they could find themselves uninsured in certain situations if they tried to rely on a standard business insurance package policy which will not cover purely economic losses or risks involved in the treatment provided.
Purely economic losses
Standard public and products liability insurance normally only covers compensation claims arising from an injury suffered by a member of the public or damage to their property. It doesn’t cover claims that result in purely economic losses.
This could mean certain compensation claims would not be covered. If a salon used the wrong hair dye on a model’s hair, for instance, there would be no injury because the hair could simply be dyed again to give it the correct colour.
However, the model could lose income while the mistake was rectified. In addition, a photographer could incur additional hire charges for studio or equipment hire if a shoot had to be postponed due to the mistake.
Because there was no injury, a standard public and products liability insurance policy would not cover any compensation claims from the model for the loss of earnings, and from the photographer for the additional hire charges.
Standard public liability insurance does not cover compensation claims that have arisen as a result of professional activities. What this means is that a salon would be covered if someone was injured because they had tripped over a trailing electric cable or slipped on a freshly cleaned floor, but the salon would not be covered if the injury was the result of a treatment.
Some compensation claims arising out of defective treatments can be very expensive to settle. A claim for facial scarring can cost £50,000 and by the time the legal costs incurred to deal with the claim are included, the total cost can be much higher. Courts can also order that the salon has to pay for private cosmetic surgery for the injured person.
Due to the lack of cover for purely economic losses and the treatment risk in a standard business insurance package policy, salons must ensure that they buy a proper salon insurance policy instead.
The salon insurance policy will contain a financial loss extension which covers compensation claims that only involve purely economic losses, as well as a treatment risk extension, which covers compensation claims arising as a result of any problems with treatments. A salon insurance policy will mean that the salon won’t find that there is a gap in its insurance cover.