How Liability Insurance Works

The cost of insurance - known as the premium - is typically worked out using a book rating. A book rating is calculated using a base rate, which includes the insurer's costs and reflects their appetite for your particular type of business - if they want your type of business the rate will be less than if they don't.

The premium is also calculated on the insurer's estimate of the level of risk attached to a particular business or industry area.

The premium will be affected by factors such as your claims history, the size of the perceived risk and your approach to risk management.

The safer your working environment and the fewer claims you have made, the cheaper your premium should be.

Premiums are also calculated on the records of other similar businesses by lumping good and bad together - small businesses with a good record may be adversely affected by this. Your own safety record and approach to risk management can minimise the effect of this.

Employers', public and product liability
For employers' liability, the exposure risk is assessed on the basis of the number of employees and the size of the payroll. In addition, other initiatives such as Making the Market Work, which improve awareness of good risk management, also influence how risk is assessed.

For public and product liability the exposure risk is based on the turnover and factors such as whether you work away from your premises.

Public Liability Insurance

If members of the public or customers come to your premises or you go to theirs, you should think about taking out public liability insurance.

What the insurance covers
This type of insurance covers any awards of damages given to a member of the public because of an injury or damage to their property caused by you or your business. It also covers any related legal fees, costs and expenses.

Premiums depend on the type of business you run, your turnover and the number of employees you have.

Talk to a professional talk to Dover Insurance Services
There are many conditions, exclusions and warranties that can be applied to public liability policies. It is therefore important that you discuss with us any that are applicable to your policy.

If you work from home, and customers or members of the public visit you there, you may also want to think about taking out public liability insurance.

Businesses which must take out the insurance
Some businesses, eg horse riding establishments, are required to have public liability cover. You will also find that many of your customers or potential customers require proof of adequate insurance before they will allow you to work for them.

Employers' Liability Insurance

Employers' liability (EL) cover enables businesses to meet the costs of compensation and legal fees for employees who are injured or made ill at work through the fault of the employer. Employees injured due to an employer's negligence can seek compensation even if the business goes into liquidation or receivership.

By law, an employer must have EL insurance and be insured for at least £5 million. Most insurers automatically provide cover of at least £10 million. EL insurance must cover all your employees in England, Scotland, Wales and Northern Ireland.

If your business is not a limited company, and you are the only employee or you only employ close family members, you do not need compulsory employers' liability insurance. Since February 2005, limited companies with only one employee, where that employee also owns 50 per cent or more of the issued share capital in the company, have also been exempt from compulsory EL insurance.

The HSE is responsible for enforcing the law on EL insurance. You can be fined up to £2,500 for each day that you do not have appropriate insurance.

Generally, someone is defined as your employee if:

• you deduct National Insurance contributions and income tax from the salary you pay them
• you control when, where and how they work
• they cannot employ a substitute when they are unable to work

Useful checks
Your policy must be issued by an authorised insurer otherwise it will not be valid and you risk breaking the law. We can advise you which companies offer suitable EL policies.

When you take out a policy you will receive a certificate of employers' liability insurance. You must display a copy of this where employees can easily read it and keep copies for at least 40 years or risk a fine of up to £1,000. You need to make these certificates available to health and safety inspectors on request.

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