Employers' liability rate for SMEs drops to new low – report

The protection gap means some UK SMEs are breaking the law

Employers' liability rate for SMEs drops to new low – report

Insurance News

By Mia Wallace

Research from GlobalData’s UK SME Insurance Survey has found that the penetration rate for employers’ liability insurance among SMEs in the UK was just 62.5% in 2021. SMEs are only exempt from this legal requirement if they have one employee who is a director and owns 50% or more of the capital, or if they only employ family members or staff outside the UK.

The falling penetration rate shows that there is a proportion of UK SMEs that are taking on additional risk by not purchasing employers’ liability insurance and GlobalData revealed that nearly a quarter of those SMEs believe the risk to their staff is minimal. This leaves these SMEs open to the risk of sizeable payouts in the event of an injury to one of their employees – and means some are breaking the law.

Ben Carey-Evans, insurance analyst at GlobalData noted that this penetration rate is low for a product required by law. He added that follow up questions in GlobalData’s research identified the main reasons why SMEs who requires such insurance did not have it in place, which included being willing to take the risk to cut costs and being unaware employers’ liability insurance is legally required.

“The relatively low penetration rate for employers’ liability is a long-term trend identified by GlobalData’s annual UK SME Insurance Survey,” he continued. “Previous editions of the survey found that only 65.4% of SMEs held it in 2020, 65.5% in 2019, and 63.4% in 2018. While this is a long-term trend, it is something insurers should look to change.”

GlobalData’s survey highlighted that 15% of respondents without this cover in place did not know it was a legal requirement, which indicates a target audience that insurers should try to reach through education. Carey-Evans added that the 2021 penetration rate is the lowest in the last four years and indicates that SMEs may have decided against this form of cover or decided not to take up a renewal due to budgets being squeezed by COVID-19.

“Yet, COVID-19 could help insurers in the longer term,” he said. “If more SMEs turn to brokers for advice to make sure that their business insurance is fit for purpose, or even simply conduct more research before purchasing insurance for the same reason, the proportion of SMEs who are unaware that employers’ liability insurance is a legal requirement will come down.”

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