Thousands of firms trade without liability insurance

HUNDREDS of thousands of small businesses are risking hefty fines or financial collapse because they have no insurance, research yesterday warned.

LV said that more 350,000 small businesses have no employers' liability insurance and risk being fined £2,500 a day. Picture: TSPL

Insurance firm LV said that more 350,000 small businesses have no employers’ liability insurance and risk being fined £2,500 a day.

By law, all businesses employing staff must have employers’ liability insurance otherwise they can be fined by the Health & Safety Executive (HSE).

One in every 14 small and medium-sized enterprise (SME) surveyed by LV did not have the required certificate.

The firm also found that one in 20 small businesses had no general insurance cover in place, equivalent to 230,000 companies across the UK.

It said that lack of insurance could spell financial ruin for a business if it is sued, or is forced to interrupt its trading due to an unforeseen event such as a fire or flood.

Mike Crane, commercial lines director at LV, said: “This research shows that thousands of small businesses are leaving themselves vulnerable to financial ruin by not taking out appropriate insurance cover.

“Those businesses employing staff are particularly vulnerable.”

According to LV’s claims data, there has been an increase in the frequency of employer liability claims as more employees brings claims. The firm believes that may be due to the UK’s growing compensation culture, combined with the tough economic climate.

Meanwhile so called “slips and trips” liability claims from the general public now make up the second-largest proportion of claims, after theft and damage caused by leaks, storms and accidental damage. The survey found that 6 per cent of SMEs did not have public liability insurance. Business interruption is the other main area in which companies can be insured against devastating losses – but just 60 per cent of small businesses have this insurance.

According to claims data, the average cost of “business interruption” claims increased by 9 per cent in 2012.

Crane said: “In today’s culture where compensation claims are on the rise, SMEs could find themselves thousands of pounds out of pocket if they do not have adequate protection.

“As we’ve seen in recent times, with riots, freezing winters and floods, there are many very real risks to SMEs which could prevent them from trading. Being insured for business interruption can therefore be the make or break for a small business.”

Colin Borland, the Federation of Small Businesses’ (FSB) head of external affairs in Scotland, said that, in recent years, severe weather has meant that many uninsured Scottish small businesses have “paid a high price”.

He added: “All businesses, large and small, need to have adequate levels of insurance. What sort of insurance they should purchase, of course, depends upon a firm’s sector, size and location.

“The FSB would encourage small businesses to shop around to ensure that they get the best deal. FSB members can, of course, look into the insurance products that our organisation offers.”