BUSINESS LIABILITY INSURANCE GUIDE

What Is Public Liability Insurance?

 

Public Liability Insurance is designed to protect your business against claims made by customers, members of the public and other third parties.

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A claim could arise if someone is accidentally injured because of your business activities or if you accidentally damage property belonging to someone else.

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Examples might include a customer slipping at your premises, a contractor damaging property while working at a client’s site, or an accident involving a member of the public while work is being carried out.

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Public Liability Insurance can cover compensation and legal costs, subject to the terms, conditions and limits of the policy.

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It is not generally compulsory by law, but many businesses need it in practice because customers, principal contractors, landlords, councils or other organisations may insist on a particular level of cover before allowing work to begin.

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What Is Employers’ Liability Insurance?

 

Employers’ Liability Insurance protects businesses against claims from employees who suffer injury or illness arising from their work.

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For most UK businesses employing staff, Employers’ Liability Insurance is legally required, subject to certain exemptions.

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The legal minimum is £5 million, although many commercial policies provide £10 million as standard.

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Claims can arise from a one-off workplace accident or from illness and injury developing over time as a result of the employee’s work.

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Who Counts as an Employee?

 

This is not always as straightforward as looking at who is on PAYE.

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Insurers may need to know about:

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• full-time and part-time employees;

• working directors;

• temporary or casual staff;

• apprentices;

• agency workers;

• labour-only subcontractors;

• bona fide subcontractors.

 

The way people work for the business is important.

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A labour-only subcontractor, often abbreviated to LOSC, may work under your direction and control and can therefore represent an exposure closer to that of an employee.

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A bona fide subcontractor is normally an independent business carrying out work on its own account and maintaining its own insurance.

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Insurers often ask for these categories separately because they may be rated differently.

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How Are Liability Insurance Premiums Calculated?

 

Public and Employers’ Liability premiums are not simply based on the name of the trade.

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Insurers want to understand both the type of work being carried out and the scale of the exposure.

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Depending on the insurer and type of business, premiums may be rated using:

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Turnover

Turnover can give the insurer an indication of the overall level of business activity. A company with £2 million turnover will generally present a greater overall exposure than an otherwise similar company turning over £200,000.

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Public Liability premiums may therefore be influenced by turnover or by turnover bands.

Wages

 

Employers’ Liability premiums are commonly influenced by the amount paid in wages.

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But insurers will often want wages split into different categories because the risk is not the same for every employee.

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For example:

Clerical and office wages
usually represent a relatively low physical injury exposure.

 

Manual wages generally represent a greater exposure.

Higher-risk manual work such as work at height, excavation or other hazardous activities may attract a different rating again.

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Employee Numbers

 

Some insurance schemes use the number of employees, directors or workers as part of the rating basis.

This may be referred to as per-capita rating.

The insurer may therefore need to know separately how many:

• directors;

• clerical employees;

• manual employees;

• workers operating away from the premises;

• labour-only subcontractors

are involv

ed in the business.

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Labour-Only Subcontractors

 

Payments to labour-only subcontractors are often requested separately.

 

Because LOSCs may work under the direction and control of the insured business, insurers can treat this exposure differently from payments made to independent subcontracting businesses.

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Bona Fide Subcontractors

 

Payments to bona fide subcontractors may also need to be declared.

Insurers may require these subcontractors to maintain their own Public Liability and Employers’ Liability insurance at specified limits.

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Why Are Turnover and Wage Figures So Important?

 

Because these figures help the insurer measure and price the exposure.

If a business declares turnover of £250,000 but is actually turning over £1 million, the insurer may have assessed a business substantially smaller than the one actually being insured.

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The same applies to wages; If manual wages have increased significantly, or if a business has moved from mainly office-based staff to a larger manual workforce, the risk presented to the insurer has changed.

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Accurate information helps ensure that:

• the insurer understands the true size of the business;

• the correct activities and workforce are being insured;

• the premium reflects the actual exposure;

• the policy remains appropriate as the business grows;

• the risk of problems or disputes at claim stage is reduced.

 

This is why turnover, wages, employee numbers and subcontractor payments are not simply administrative questions.

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They form part of the underwriting basis on which the insurer has agreed to provide cover.

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Can Incorrect Figures Cause Underinsurance Problems?

 

Potentially, yes.

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The exact consequence will depend on the policy wording, the nature of the incorrect information and the circumstances of a claim.

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However, a policy based on materially outdated or understated business figures may no longer accurately reflect the exposure being insured.

Changes that should normally be discussed with your broker include:

• significant turnover growth;

• increased employee numbers;

• higher manual wages;

• changes in the type of work employees perform;

• using labour-only subcontractors for the first time;

• larger contract values;

• working at greater heights or depths;

• new business activities;

• overseas work;

• substantially more work away from your own premises.

 

If the business changes materially during the policy year, it is better to speak to your broker rather than simply waiting until renewal.

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Why Do Insurers Split Wages Into Categories?

 

Because the likelihood and potential severity of an injury varies enormously according to the work being performed.

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£100,000 of wages paid to administrative employees sitting in an office does not represent the same exposure as £100,000 of wages paid to scaffolders, roofers or other manual workers.

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Splitting the wage roll allows the insurer to apply an appropriate rate to each category.

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It also gives the insurer a much clearer picture of how the business actually operates.

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Public Liability and Employers’ Liability: What Is the Main Difference?

 

The simplest distinction is who is making the claim.

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Public Liability Insurance relates primarily to customers, visitors, members of the public and other third parties.

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Employers’ Liability Insurance relates to employees and certain other workers who may be treated as employees for insurance purposes.

Many businesses therefore require both.

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How Much Public Liability Cover Do I Need?

 

There is no single correct limit for every business.

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The appropriate amount depends on factors including:

• the type of work undertaken;

• contract requirements;

• where the work is carried out;

• the potential severity of a claim;

• the type of clients you work for.

 

Common limits include:

£1 million
£2 million
£5 million
£10 million

 

Larger contractors, public-sector bodies and major commercial clients often require higher limits.

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Why Review Liability Insurance Every Year?

 

Businesses rarely stand still.

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Turnover increases. Wages change. Employees join. Contractors are taken on. Larger contracts are won. New activities begin.

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At each renewal, it is worth reviewing:

• annual turnover;

• clerical wages;

• manual wages;

• employee numbers;

• labour-only subcontractor payments;

• bona fide subcontractor payments;

• maximum contract values;

• work away from your premises;

• maximum heights and depths;

• any new business activities.

 

That allows your broker and insurer to assess the business as it operates today, rather than relying on outdated information.

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How Can Morris Perrin Help?

 

At Morris Perrin Insurance Consultants, we start by understanding the business.

 

We look at what you do, where you work, your employees, contracts, premises, equipment and other exposures before discussing the insurance that may be appropriate.

 

That might result in a relatively straightforward policy or a combination of different covers arranged around more complex business risks.

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​Not Sure What Your Business Needs?

 

You do not need to know the name of every insurance policy before speaking to us.

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Tell us what your business does and how it operates, and we can help you identify the areas that need consideration.

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Call Morris Perrin Insurance Consultants on 01252 299094 or book a consultation.

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Reviewed by Jeremy Perrin, Managing Director, Morris Perrin Insurance Consultants Ltd.