New research from financial services review site Smart Money People indicated that over 160,000 micro businesses and SMEs in the UK with between one and nine employees will not have employer’s liability (EL) insurance coverage by the end of the year. The figure represents a combination of businesses that do not currently have EL and will not be taking it, and those that currently have the insurance but will be stopping it during 2023.
The large figure is noted despite EL insurance being a legal requirement for all businesses that employ staff. Without EL coverage, businesses risk fines from the Health & Safety Executive (HSE) of up to £2,500 for each day that they are uninsured, as well as potential prosecution in the event of an incident.
According to the research, micro-businesses and SMEs were the most vulnerable to being uninsured for EL. Most sole traders with just one employee do not need EL insurance, and the research showed that larger employers with between 10 and 250 employees were more aware of their obligations.
Many of the businesses with between one and nine employees are likely to either not be aware of their responsibilities when they employ staff, or simply choose to throw caution to the wind as they seek more savings.
“Senior decision-makers wear so many different hats and buying insurance at this level is often a distraction from running the business itself,” Smart Money People CEO Jacqueline Dewey said. “Therefore, we believe that many small businesses may simply be overlooking the need to add EL to their basket of insurances as they grow.”
That said, Smart Money People voiced its suspicion that there is also a second group of businesses who have previously held DL and now believe that it is a surplus to their requirements. In some circumstances, they are correct, but in most cases it’s believed to be a response to rising inflation.
“As everything from salaries to raw materials and energy bills continue to spiral, it is completely understandable that some small businesses are trying to rein in their spending. However, they need to know that employers' liability insurance is, in most cases, a non-negotiable expense,” Dewey said.
Dewey also said that this could be an opportunity for insurers and brokers to remind small business prospects about why they need to have this insurance and what protection it can offer them. The more tailored these are to the risks associated with specific sectors or industries, the more likely these businesses are to listen.
The site also noted that insurers would be pragmatic to warn small businesses that during times of economic hardship, and driven by claims management companies’ aggressive tactics, employees may be more likely to sue their employer if they believe that it can lead to financial gain.
“Insurers know they will always face a challenge when it comes to micro and small businesses,” Dewey said. “Employers’ liability is perhaps an area where more education is required to help decision-makers at these enterprises really understand the product and more importantly, the risks associated from being without it.”
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