As a self-employed business owner, it is your legal responsibility towards your customers, employees and the general public. You could be held legally liable and risk being sued if a member of the public or an employee is harmed because of your breach of duty or negligence. If their claim for personal injury compensation is successful, you may also face a claim from the NHS for refund of hospital treatment costs (including ambulance costs if and when appropriate).
In its simplest form, liability insurance is formulated to pay any compensation and legal costs that occur if an employer is discovered to be at fault. If you employ staff it is very likely that you will required to buy employers' liability compulsory insurance (ELCI).
ELCI requires any employer running a business in the United Kingdom to provide insurance against their liability to their employees for bodily injury or disease suffered whilst in your employment in the UK. Liability insurance offers greater peace of mind to firms against penalties which could result in cash flow difficulties, and to employees that resources will be available for compensation even where firms have become insolvent.
How are liability insurance premiums calculated ?
The cost of insurance - known as the premium - is typically calculated utilising a "book rating". It is calculated by beginning with an initial charge, which reflects the insurance company's overheads and reflects their desire for your profession - if they are happy to provide cover to your type of business, the premium will be cheaper than if they don't.
The price is also calculated on the insurer's opinion of the level of risk attached to a particular profession or business area.
The premium will be affected by factors including your claims history, the size of the perceived risk and your approach to risk management.
The fewer claims that you have made and the safer your workplace, the lower the policy should be.
Prices also include calculations from other similar businesses by lumping good and bad together - small businesses with a good record may be adversely affected by this. Your own safety record and approach to risk management can minimise the damage caused by this.
For employers' liability, the exposure risk is calculated on the basis of the number of employees and the size of the company wages bill. In addition, there are other initiatives that influence how costs are calculated.
For product and public liability the exposure risk is based on the turnover of your company and other items such as whether you carry out your business away from your normal place of work.
What public liability insurance covers
Public liability insurance covers any damages and costs awarded to someone because of damage to their property or an injury caused by you or your staff. Furthermore it covers any costs, expenses and related legal fees together with costs of hospital treatment (including ambulance costs) that the National Health Service might claim from you.
Policy costs vary depending on your line of business, the turnover of the business and the number of employees you have.
Public liability insurance is a complex product and likely clients should study carefully all of the documentation to ensure that the product matches their needs.
Even if you work from home, and members of the public or customers meet 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 cover. You will also find that a number of your potential or existing clients require evidence of current public liability insurance prior to allowing you to work for them.
Many self-employed tradesmen or small business owners will find that there are a variety of products that are tailored to their business. These policies can be marketed under a variety of labels including business insurance, small business insurance or self employed liability insurance. These products will include a number of individual sections including employers and public liability, combined with a combination of professional indemnity, office insurance and legal expenses cover.
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