Insurance hikes hit jobs

Betws colliery is to close because it can't meet insurance costs

The Federation of Small Businesses (FSB) is reporting that one in five small businesses is being squeezed by the soaring cost of liability insurance.

As a result, jobs are being lost, training is being cut and some employers are trading without insurance because they can't get cover.

Rocketing premiums

As we've reported before on Working Lunch, insurance premiums have increased massively over the last two years as a combined result of falling stock markets, the compensation culture and global terrorism.

Insurance premiums have risen by such an extent that many companies are now either cutting jobs or putting a freeze on further recruitment.

Training is also being cut back.

The FSB's survey showed that out of 1,000 small business owners, 20% said that they'd reduced staff numbers.

The same number of businesses also report a doubling of premium costs this year, on top of significant hikes last year.

If this trend continues, many small businesses will struggle to survive.

We spoke to Stephen Alambritis, spokesman for the FSB, he told us that the situation is so serious it might have long term implications for business growth and entrepreneurism in the UK.

"It's a very serious situation. The second year of huge increases in premiums and this is impacting the growth potential of small firms."

Pressure

One Working Lunch viewer, Kristian Fitzgerald from Solihull, runs a scaffolding company.

"It's killing us," says Kristian from K&D Scaffolding

Last year his public liability insurance leaped from £6,000 to £24,000 per year, that's a staggering 400% rise.

He doesn't think that his company could afford another similar hike this year.

"We can't afford to keep going. It's killing us," says Kieran from K and D Scaffolding.

"We're trying to pass the rises on to customers, but they can only stomach so much.

"If our insurance goes up again in October we'll have to close down, and lay off ten staff."

And even before then, just keeping going is very tough.

"We're having to work six or seven days a week because we have to earn £2,500 per month just to pay the insurance.

"That's before we pay ourselves or run the business."

All businesses are effected by the insurance price rises which cover both employer and public liability.

Conditions

And the FSB's survey shows that the insurance industry is also penalising small business in other areas.

Many firms are having their cover withdrawn at short notice, and stringent conditions are sometimes being applied to renewed policies.

"Notice is a key point, many businesses receive less than two weeks notice of withdrawal of cover," says Alambritis.

And for a majority of businesses surveyed who'd had their cover withdrawn, no extension was offered whilst alternative insurance was arranged.

"Conditions are also being attached to the cover, so some business activities are being curbed. Even if the insurance climate improves, it'll be too late for the business to resume work in these areas, they'll be too reluctant. "

The result could mean business people become more cautionary and risk-averse.

The bottom line

Turnover is being hit hard.

60% of firms surveyed by the FSB reported a decrease in profitability with a quarter of them noting a decrease in turnover.

Betws Colliery in Wales has run itself valiantly as an independent pit for ten years but it's now on the brink of closure.

Their bill for liability insurance has risen from £80,000 three years ago to an unaffordable £700,000 from the August 1.

If, but more likely when that business closes, 110 jobs will be lost.

For many businesses there's a stark choice: to continue working and trading legally with insurance cover, or recruiting new staff.

"In the long term the government has to realise something needs to be done," says Stephen from the FSB.

"We'd like to see an Office of Fair Trading investigation into insurance and in the shorterm, the government could help out urgent cases."

Whilst the government is looking into the matter, in the meantime, the situation is becoming critical.

Already around 8% of the business population is trading without insurance according to the FSB.

And even if that is just a short-term measure whilst insurance is arranged or re-newed, there's a huge risk that both employees and members of the public could be putting their lives at risk.