As an employer or small business owner, you have a legal responsibility towards your employees, customers and the public. You are in danger of being held liable and could be sued if an employee or a member of the public is injured as a result of your negligence or breach of duty. If their personal injury claim is successful, you could also face a bill from the NHS for refund of hospital treatment costs (including the cost of providing an ambulance if and when appropriate).
In its simplest form, liability insurance is formulated to pay any legal costs and compensation that occur if someone is found to be at fault. If you employ anyone it is very likely that you will required to buy employers’ liability compulsory insurance (ELCI).
ELCI requires employers carrying out business in the United Kingdom to insure their liability to their staff for harm or illness suffered during the course of their employment in the UK. It provides increased security to firms against penalties which might result in cash flow difficulties, and to staff members that funds will be on hand as compensation even if companies are no longer operating.
How liability insurance works
The cost of insurance - known as the premium - is typically worked out utilising a “book rating”. It is worked out by starting with a base rate, which reflects the insurance company’s costs and signals their appetite for your profession - if they are happy to provide cover to your profession, the premium will be lower than if they don’t.
The policy cost is then modified to reflect the insurance company’s estimation of the level of risk attached to a particular profession or business area.
The premium will be amended by factors such as your claims history, the insurance company’s perception of the risk involved and their estimation on the likelihood of any claim being lodged against you.
The safer your working environment and the fewer claims you have made, the cheaper your premium should be.
Costs also include calculations from other similar professions by lumping good and bad together - a small business with a good record may be adversely affected by this. Your own safety record and approach to risk management can lessen the damage caused by this.
With employers’ liability, the risk to the insurer is calculated whilst taking into account the number of employees and the size of the payroll. Additionally, there are other initiatives that influence how risk is assessed.
For product and public liability the insurance risk is calculated on the turnover of your company and other items including whether you work away from your premises.
What is covered by public liability insurance
Public liability insurance covers any damages and costs awarded to someone because of an injury or damage to their property or belongings caused by you or your staff. Furthermore it covers any costs, expenses and related legal fees as well as charges for hospital treatment (including ambulance costs) that the NHS might claim from you.
Charges depend on your line of business, your turnover and the number of employees you have.
Public liability insurance can be a complicated product and likely customers are urged to read carefully through all of the documentation to make sure that the product is right for their business.
Even if you work from home, and customers or members of the public visit you there, you should probably think about taking out public liability insurance.
Some businesses, for example horse riding establishments, are legally forced to have public liability insurance. You will also find that some of your potential or existing customers require proof of current public liability insurance cover prior to allowing you to work for them.
Many self-employed tradesmen or small business owners will find that there are liability insurance products that are designed to their particular trade. These policies are marketed under a number of labels such as small business insurance, self employed liability insurance or business insurance. These offerings should include a number of individual sections including employers and public liability, together with a combination of legal expenses, professional indemnity and office insurance.
