UK Liability Insurance - In Plain Language

Being an employer or small business owner, you have a legal responsibility towards your employees, customers and the general public. You could be held legally liable and risk being sued if an employee or a member of the public suffers an injury because of your breach of duty or negligence. If their claim for personal injury compensation is successful, you might also receive a bill from the NHS for refund of hospital treatment costs (including ambulance costs should it be necessary).

In a basic form, liability insurance is designed to pay any compensation and legal costs that could happen if a worker is discovered to be at fault. If you employ staff it is very likely that you will be required to take out employers' liability compulsory insurance (ELCI).

ELCI forces any employer carrying out business in the UK to insure their liability to their employees for harm or disease suffered whilst in the course of their employment in the UK. Liability insurance offers greater security to firms against costs which might result in financial problems, and to staff members that resources will be on hand as compensation even if companies have become insolvent.

How liability insurance works

The price of an insurance policy - known as the premium - is normally calculated using a "book rating". A book rating is worked out by starting with a base rate, which reflects the insurer's overheads and signals their appetite for your particular type of business - if they want your type of business, the premium will be cheaper than if they don't.

The premium is then modified to reflect the insurer's estimation of the level of risk attached to a particular profession or industry area.

The price will be affected by factors such as any previous claims, the size of the perceived risk and your approach to risk management.

The fewer claims that you have made and the safer your working environment, the cheaper your premium should be.

Premiums also include calculations from other similar businesses by amalgamating both good and bad - small businesses with a good record may be damaged by this. Your own approach to risk management plus your safety record can lessen the effect of this.

For employers' liability, the risk to the insurance company is calculated whilst taking into account the number of employees and the size of the company wages bill. In addition, there are further factors that influence how risk is assessed.

For product and public liability the exposure risk is calculated on the turnover of your business and factors including whether you carry out your business away from your normal place of work.

What public liability insurance covers

Insurance for public liability insures against any awards of damages given to a member of the public following an injury or damage to their property or belongings caused by you or your business. It also covers any related legal fees, costs and expenses as well as costs of hospital treatment together with any associated ambulance costs that the National Health Service might demand from you.

Policy costs depend on the type of business you run, the turnover of the business and how many staff you employ.

Public liability insurance can be a complicated product and prospective clients must study carefully all of the documentation to make sure that the insurance is right for their business.

Even if you work from home, if members of the public or customers meet you there, you may also want to consider purchasing public liability insurance.

Some businesses, for example horse riding schools, are legally forced to have public liability cover. You are also likely to discover that many of your potential or existing customers need evidence of current public liability insurance cover prior to allowing you to work for 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 products are found under a variety of labels including business insurance , small business insurance or self employed liability insurance. These products should include a number of individual parts including employers and public liability, together with a selection of office insurance, legal expenses and professional indemnity.