Managing employers’ liability insurance

Employers’ liability insurance, like an appointment at the dentist, is an unwelcome but necessary imposition. Basically, if you employ people you have to have it. Yet surprisingly, many small companies take out a basic policy and have no idea what eventualities they are covered for and, more crucially, what they are not.

As an employer, you are responsible for the welfare of your employees while they are at work. If a current employee is injured at work or becomes ill as a result of the work done while in your employ, they may try to claim compensation from you, which could be very damaging and even make your business go under. Employers’ liability insurance (ELI) ensures you have a minimum of insurance cover against such claims.

A no-brainer

Taking out liability insurance is a ‘no-brain decision,’ says Business Link for London adviser Stuart Masterton. ‘You have to protect yourself against past, current and future liability for injuries or illness to employees. It’s a compulsory safety net for employers.’

In this litigious age of no-win, no-fee solicitors, ELI premiums have risen dramatically, causing headaches for business owners everywhere. Sadly, there is very little that can be done to significantly reduce the premiums, according to Masterton, although he advocates keeping all health and safety records accurate in an effort to prove an unblemished record.

Businesses must be covered for a minimum of £5 million liability, although £10 million is more usual, and must be insured with an authorised agent. A list of these can be obtained from the Financial Services Authority website at

Protect against future claims

Being uninsured, or insuring with an unauthorised agent, carries a fine of £2,500 a day from the Health & Safety Executive (HSE). Failure to display a valid certificate incurs a further £1,000 penalty should an HSE inspector happen to drop by. Copies of the certificate should be displayed in all offices and areas where staff work. In addition, since 31 December 1998, certificates for each year’s ELI must be kept for 40 years to cover subsequent occurrences of illnesses or injuries to employees or former employees caused by working for your business.

‘The insurance covers just about all company activities if you’re employing someone,’ Masterton concludes. ‘The type of cover and premium depends entirely on the type of business; obviously, the risks involved in office work are very different from those in a factory or in mining.’

It’s important that your insurance company have an accurate record of the type of work your business does and how many people are employed. Remember that sub-contractors or temporary staff must also be included in the cover for the time they are doing work for you. Keeping the insurance company informed of changes, such as employing more people or a significant change in the work you do, is strongly recommended to ensure you are adequately covered.

If there is any doubt about what kind of insurance is needed, the first port of call should be the HSE ( who can advise. As Masterton says, with the amount of money involved in compensation and fines for not being properly insured, ‘it’s better to be safe than sorry.’

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.

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Business insurance