Premium hikes hit more businesses

Making sure the liability insurance was up to date used to be a boring job that came up once a year but seldom caused a problem.

Now it threatens to cripple thousands of small businesses across the UK.

Either they can't get the cover, or the policies are too expensive.

Working Lunch has received a flood of letters complaining about profiteering insurance companies, the compensation culture and government inaction.

Illegally

It's estimated that 18,000 businesses are trading illegally, without liability insurance - though the true figure could be much higher.

Tony Martin, who runs a waste disposal company in Cornwall, thought he might have to close the business, until he found an insurer who would give him temporary cover.

Tony Martin: "No alternative"

"You carry on or you close the doors and get rid of all your employees - there's no alternative unless you want to work illegally," says Tony.

Another viewer had been struggling to pay an annual premium of £4,000 for his policy, then received a quote of £30,000 for liability insurance for the year ahead.

Lincolnshire window cleaner Andy Bishop was paying £1,008 for his business insurance.

But this year he has struggled to find anyone willing to cover him and his five employees.

The brokers were not prepared to give us a quotation

Window cleaner Andy Bishop

Various brokers turned him down before he found cover - but it cost a whopping £9,750.

"It's just far too much to take on board for a small business like ourselves," says Andy.

The extra burden could mean a pay cut of £1 an hour for Andy and his team.

However, it's likely he'll try to cover his costs by putting up prices - like small businesses around the country.

"The problem seems to be that companies one by one have withdrawn from this market and they don't want to deal with anything where there's a real risk," says Andy.

Lack of competition

That lack of competition has left the few firms insuring window cleaners able to charge higher premiums.

Businesses need to protect themselves against claims made by their employees or by members of the public.

Often the claims come because someone has been injured as the staff do their jobs. So there is employer's liability insurance, protecting staff, and public liability insurance for the rest.

Any business employing other people has to have employer's liability insurance.

Blanket law

Self-employed traders don't necessarily need it, and they may be able to do without if they contract out some work to another self-employed trader.

There is no blanket law which requires companies to have public liability insurance as well.

But many find that their customers insist upon it.

So, effectively, public liability cover can be a requirement to trade as well.

Some businesses have found a happy solution to the problem.

Bennington Carriages: Happy solution

Bennington Carriages of Newark in Nottinghamshire was threatened with the prospect of trading illegally after spending weeks in a fruitless search for insurance.

In the end, NFU Mutual stepped in and provided cover for a smaller premium than before.

Other businesses have found that trade associations and professional bodies can provide useful contacts with insurers willing to help.

But one engineering expert reported that his professional body put him in touch with an insurer who had already pulled out of the business.

Liability insurers blame the ballooning size of claims for the crisis.

Premiums have been raised to pay for record-breaking awards of compensation.

Inquiries

In some industries, such as construction and scaffolding, insurers are reluctant to provide cover at all.

The government has started two inquiries into the situation, one from the Office of Fair Trading and one from the Department for Work and Pensions.

No immediate solutions are in prospect, because the reports are thought to be months away.

A wide range of suggestions are being put forward.

Malcolm Tarling: "Have to reflect risks"

The Association of British Insurers is pondering the separation of industrial accident insurance from policies which cover companies if they are responsible for long-term diseases, such as asbestosis or repetitive strain injury.

"You might cease employment today but you may not develop the symptoms of a particular disease until 20, 30 even 40 years down the line," says the ABI's Malcolm Tarling.

"The problem for insurers is that we have got to set premiums at the moment to reflect the risks we know about, not risks that might not become apparent until many years later."

Radical

Working Lunch viewers are more radical. One wants the government to learn from Australia, which has a state-run scheme for employer's liability.

Another suggests "captive" insurance companies - a whole industry would band together to pool resources and insure itself against accidents.

We've also received calls for upper limits to be imposed on compensation awards.

Malcolm Tarling says the inquiries should look at "no fault" compensation. Claimants would receive payouts via a fast-track system in most cases.

By cutting out the lawyers, costs could be cut by 40%.