Insurance woes mean SMEs could be breaking the law
A quarter of SMEs could be breaking the law as employers and owners are unaware of or do not understand their legal obligations, according to research from Aviva.
It means some firms are in danger of breaking the law and some offences carry strong penalties that could leave a company struggling financially.
Employers’ liability insurance is a legal requirement for many businesses with staff, yet 11% of SMEs didn’t believe this was the case under any scenario.
A quarter of SMEs also wrongly believed that employers’ liability insurance is only required legally when a business has more than one employee.
Such insurance exists to provide cover should a staff member claim for illness or injury that is caused by their job.
It is a legal requirement from the moment a business becomes an employer and those without it could face fines of £2,500 for every day that they are not properly insured.
Should a firm face fines relating to a particularly long period of no insurance cover then it could be left facing corporate insolvency.
Ensuring that a company has the correct insurance cover in place is therefore vital to its longevity and success.
Some 87% of SMEs did not know that the legal requirement for employers’ liability insurance is £5 million – meaning it is possible to have cover that does not meet the legislation.
A fifth of SMEs thought the legal requirement was as low as £500,000, meaning they could face fines unless they improve their cover.
Confidence among firms that they had the right insurance cover in place was also low, with only 29% of SMEs believing they had the right cover.
Around 12% of firms questioned said they had no insurance at all, leaving an estimated 600,000 firms in the UK vulnerable to claims.
New start-ups were less likely to have insurance, as 25% of them lacked it, compared to a figure below 5% for firms that have operated for eight to ten years.
Checking policies to ensure they cover the necessary risks could aid firms in the long-term and the importance of insurance should certainly not be overlooked.
By Phil Smith