Being a small business owner or employer, you have a legal responsibility towards your customers, employees and the public. You risk being held liable and could be sued if an employee or a member of the public is harmed as a result of your breach of duty or negligence. If their personal injury claim is successful, you could also face a claim from the National Health Service for the costs of hospital treatment (including the cost of providing an ambulance should it be necessary).
In a basic form, liability insurance is designed to pay any legal costs and compensation that occur if a worker is deemed to be at fault. If you employ even one member of staff it is very likely that you will have to take out employers' liability compulsory insurance (ELCI).
ELCI requires any employer running a business in the UK to provide insurance against their liability to their employees for bodily injury or illness suffered in the course of their employment in the UK. It provides increased peace of mind to employers against penalties and legal costs which could result in financial problems, and to members of staff that resources will be there as compensation even if firms have gone bust.
How are liability insurance premiums calculated ?
The price of an insurance policy - known as the premium - is typically worked out using a "book rating". It is calculated by starting with a base rate, which reflects the insurer's costs and signals their appetite for your profession - if they want your type of business, the premium will be cheaper than if they don't.
The price is also calculated on the insurance company's estimation of the amount of risk related to a particular profession or business area.
The premium will be affected by factors such as your claims history, the size of the perceived risk and their judgement as to the chance of a claim being made against your company.
The safer your working environment and the fewer claims you have made, the cheaper your premium should be.
Premiums are also calculated on the records of other similar professions by amalgamating both good and bad - a small business with a good record may be damaged by this. Your own safety record and approach to risk management can lessen the effect of this.
For employers' liability, the risk to the insurer is assessed whilst taking into account the number of members of staff and the size of the payroll. Additionally, there are further factors that affect how risk is assessed.
For product and public liability the insurance risk is based on the turnover of your business and other items including whether you work away from your premises.
What is covered by public liability insurance
UK Public liability insurance covers any awards of damages given to a member of the public because of an injury or damage to their belongings or property caused by you or your staff. Furthermore it insures against any costs, expenses and related legal fees together with costs of hospital treatment together with any associated ambulance costs that the NHS may demand from you.
Premiums vary depending on the type of business you run, your turnover and how many staff you employ.
Public liability insurance is a complicated product and likely clients should read carefully through all of the documentation to make sure that the product matches their needs.
Even if you work from home, and customers or members of the public meet you there, you should probably think about taking out public liability insurance.
Some professions, for example horse riding schools, are required to have public liability insurance. You are also likely to find that a number of your potential or existing customers need evidence of adequate insurance before they will allow you to do business with them.
Many self-employed tradesmen or owners of small businesses will discover that there are liability insurance products that are tailored to their particular trade. These policies are found under a variety of labels including small business insurance, self employed liability insurance or business insurance. These policies will include a number of individual sections including employers and public liability, together with a selection of legal expenses, professional indemnity and office insurance.
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