Employers’ liability insurance (ELI) became a legal requirement for all UK businesses in 1972. It means that for a business to trade legally, it must have insurance cover for all employees. The legal minimum cover is £5 million and certificates must be displayed in the workplace. The cover ensures that if an employee is injured at work or becomes ill as a result of their work and decides to sue their employer, there is at least a minimum level of insurance to cover the claim. In recent years the cost of ELI has risen steeply for a variety of reasons. Reports indicate that many smaller businesses have shut down as a direct result with certain sectors particularly badly hit including the construction industry, painters and decorators, nurseries and childcare centres and haulage companies.
As a result the government undertook an in depth review of ELI which recognised that ‘the market hasn’t failed but it hasn’t been working well enough’. Amongst the measures under consideration is the possibility of waiving the requirement to obtain ELI for 300,000 of the smallest single owner-employer companies. The government has now announced that this exemption will be introduced in 2005. The Association of British Insurers estimates that the average saving for each company might amount to £250 a year. At the time of writing the precise start date had still to be confirmed.
In some quarters the announcement of the exemption has received only a very muted welcome. Business groups have called the exemption ‘a half measure that would not improve life for the vast majority of small businesses – some of which have seen premiums doubling and trebling in recent years’. The Forum of Private Business (FPB) commented as follows: ‘some sectors are being hit with massive insurance premium hikes, such as scaffolders, while window cleaners struggle to get employers’ liability at all. There are many conscientious employers who want to offer the best health and safety protection for their staff but their pockets are being hammered by sky high premiums’.
It would be nice to think that the new exemption for companies that employ only their owner might be just the first announcement in this area. The FPB for example continues to press for the removal of insurance premium tax from business insurance whilst the government is consulting with industry and insurers about potential steps to ease the problem.