Uninsured start-ups leaving themselves vulnerable to fines

Thousands of UK start-ups are operating illegally by failing to take on employers’ liability (EL) insurance, a new study has revealed.

If you employ one or more people in the UK, EL insurance is a legal requirement for most businesses – even if you only employ casual workers or contractors.

However, new research, published by insurance giant Axa, shows that just four in 10 start-ups founded in the past three years operate with EL cover.

This figure rises to six in 10 by the fourth year, but this still leaves a significant proportion of Britain’s two million start-ups vulnerable to penalties. Fines can reach £2,500 for each day that an employer operates without cover.

When asked why they chose not to take out EL insurance, 72 per cent of business owners considered their organisation “too small” to need it, while a quarter didn’t know it was a legal requirement.

The least common reason for not taking out insurance was price, with just eight per cent of start-ups saying it was too expensive.

A further three per cent said they had forgotten to renew.

Gareth Howell, managing director, AXA Direct, said: “The key finding of this survey is that people are operating businesses without insurance because they think they are ‘too small’ or ‘too young’ for risk.

“We see no evidence in our claims figures that this is the case: we regularly settle injury claims on behalf of microbusinesses that top the million pound mark. That isn’t unusual these days at all, and the amounts claimed in compensation are likely to increase following the government’s change to the Ogden Rate in March of this year.

“Added to that is a significant rise in property damage claims too, as the value of fixtures, fittings and floorings is going up in British properties across the board.”

“We anticipate that claims against small firms will increase in value, and they are affecting a wider spectrum of occupations than ever before. Compensation culture has played its role here. Having a greater proportion of young businesses in the economy also contributes, as they can be less prepared for pitfalls and mistakes than firms that have been around longer. Insurance should be considered an essential piece of financial protection from Day One,” added Mr Howell.