Even with the most robust health and safety measures, accidents can still happen during business activities.
If your business is found to be at fault, the resulting legal costs and compensation payments can be substantial, potentially leading to serious financial strain or even business closure for smaller enterprises.
Public liability insurance is designed to cover these associated costs, providing vital financial protection and peace of mind. Understanding the factors that influence the cost of this essential cover is crucial for any business owner.
Both public and product liability insurance protect your business against third-party claims for injury or property damage. However, there's a key distinction:
- Public liability insurance: covers claims arising from your business operations or services – essentially, things you or your employees *do* or *fail to do* in the course of your work.
- Product liability insurance: covers claims specifically related to damage or injury caused by a product you have manufactured, supplied, or sold.
While distinct, you can often purchase both types of cover as a combined insurance package.
Whether your business operates as a sole trader, limited company, or partnership can influence how your premium is calculated. Insurers may consider the legal structure as part of their risk assessment.
Insurers assess various factors to calculate risk and determine your premium. These include:
- Premises frequented by the public: If your business premises are regularly visited by members of the public (e.g., a busy storefront), this can increase the perceived risk.
- Work in public spaces: Whether your work takes place in public areas, either indoors or outdoors, also affects risk assessment.
- Annual turnover: A business's annual turnover is an indicator of its size and activity level, which can correlate with potential risk exposure.
- Number of employees: The number of employees can also be an indicator of business size and activity, and more employees can sometimes mean a higher chance of incidents.
- Health and safety record: Businesses with a poor history of accidents or previous claims are likely to be considered higher risk and face increased premiums. Much like car insurance, a poor track record can raise your premium.
It’s crucial to provide accurate information to your insurer regarding these factors. Inaccurate information could not only affect your premium but also potentially invalidate your insurance cover in the event of a future claim.
The level of cover you select directly impacts your premium. Standard public liability insurance policies offer coverage levels ranging from £1 million, £2 million, £5 million, up to £10 million. Generally, opting for a smaller amount of coverage will result in a lower premium.
However, it's important to note that simply halving your cover amount (e.g. choosing £1 million instead of £2 million) will not necessarily halve your premium. Other risk factors play a significant role in the overall premium calculation.
While a lower level of cover will reduce your upfront premium, choosing the absolute lowest level might not be the most prudent decision. For most small businesses, a public liability cover level somewhere between £2 million and £5 million is generally considered adequate.
However, it's vital to realistically assess your risks and potential liabilities. Insufficient cover could create significant financial problems if a claim exceeds your policy limit.
Consider that even a seemingly minor incident, like an ankle injury, could lead to damages claims of up to £12,000, while more serious injuries, such as fractures requiring extensive medical treatment, could attract damages in the region of £45,000 – and these figures exclude legal fees and potential lost earnings claims.
Furthermore, be aware that some public and private sector construction projects may stipulate a minimum level of public liability coverage as a condition of contract.
If you are uncertain about the appropriate level of public liability cover for your business, it's advisable to seek guidance from relevant trade bodies or professional associations within your industry. Their expertise can help you determine the adequate level of protection for your specific needs.
Avoid relying solely on informal advice from friends or colleagues, as their situations may differ significantly from your own.
When evaluating business insurance, it’s important to consider ‘cost’ in a broader sense than just the premium price. You need to factor in the potential savings in time, stress, and financial security that insurance provides, particularly in the event of a claim.
Public liability insurance offers crucial protection that can prevent a successful claim from causing severe financial damage or even business failure. It provides peace of mind, knowing that in the event of an incident, your business is protected.
Moreover, in the event of a claim, your insurer will typically appoint a lawyer to handle the complexities of the case on your behalf, saving you significant time, expense, and hassle in managing the legal process yourself. Public liability insurance is therefore undoubtedly a worthwhile investment for most businesses.