How much public liability insurance do I need?
Public liability insurance is designed to cover the legal expenses, as well as any financial damages, you may be liable to pay in the event that your business is accused of injuring a member of the public or damaging their property while carrying out your services.
While understanding what public liability insurance is is one thing, knowing how much cover your business actually needs is another.
Fundamentally, all businesses are unique, meaning there is no one-size-fits-all approach to public liability insurance. From the size of your organisation and the amount of direct contact you have with the general public to the nature of your business and the types of clients you regularly work with, there are a wide range of factors that determine the amount of cover your business requires. With this in mind, here at Markel Direct UK, we’ve dedicated a blog post to exploring these factors with the aim of helping you to understand how much public liability insurance your business should have.
How much public liability cover should I get?
This is quite literally ‘the million dollar question’. Typically speaking, public liability (PL) insurance provides businesses with different cover limits ranging between £1m and £10m. This limit represents the maximum amount that your provider will cover in the event of a claim being made against your business. However, knowing how much cover you need to take out is not always straightforward.
While the figures involved regarding cover limits may sound high, it’s important to remember that if a third party individual makes a claim against your business, you might be ordered to pay compensation for everything from a potential loss of earnings to medical costs, including future care. You may have to cover your legal fees and even those of the person suing you, so these expenses can easily creep up.
With all of this to think about, in order to establish how much PL cover you need for your business, there are a number of deciding factors relating to your organisation. We will look at each of these in more detail below.
What does the level of cover depend on?
The level of PL cover your business needs depends on what your organisation does and how large it is. If you run a high-risk business with thousands of employees - a nationwide construction company, for example - you are more likely going to need a higher level of cover. This is because your day-to-day operations involve a large number of employees potentially using dangerous materials and specialist equipment. High-risk businesses could also include small, public-facing enterprises, such as shops or cafes which rely on almost constant face-to-face contact with members of the public in order to operate.
On the other hand, low-risk businesses - organisations which only need to interact with clients online or over the phone, such as marketing agencies or IT consultancies, for example - may only require low levels of public liability cover.
Read on to find out which specific factors should shape the amount of PL cover you need to purchase for your business.
Perhaps the simplest deciding factor, the size of your business is naturally going to play a part in how much PL cover you need. If, for example, you are a national company with thousands of employees located at various locations across the length and breadth of the country, you are clearly going to require more cover than a business made up of three people, operating from one location. However, it should be noted that the nature of your business’ work and the amount of physical contact this work requires with the public is a better indicator of how much cover your business needs.
Contact with the public
As touched upon above, if your business interacts with members of the public on a regular basis, more cover will be needed. With this in mind, if you have a public-facing business such as a cafe, restaurant or shop, or you run a plumbing or electrician business which requires you and your employees to regularly visit people’s homes, you are likely to have a high-risk public liability profile, meaning a larger PL policy is required. Conversely, if you deal with clients and customers over the phone or online, for example, you would be considered low-risk and less cover would be needed.
Specific PL cover requirements that are detailed in contracts you hold with clients can be easily overlooked. Some of the clients you work with will stipulate a particular level of cover from all businesses that they work with. This will be detailed in your contact. This is common for agencies that work with a wide range of clients. It's also common for live performers and DJs, for example, who are booked to work at a number of specific venues with different PL requirements.
While private sector clients may not have any such requirements, it is interesting to note that it is common for governments, local authorities and other public sector contracts to require their business partners to have at least £5 million worth of public liability cover in place.
Just as you have to consider how much contact your business has with the public, another factor that will determine the level of PL cover you need to think about is the type of work you do. As we have already touched upon a business that carries out potentially dangerous tasks, or uses materials or equipment that could injure individuals or damage personal property, is clearly going to require more PL cover than a business that operates in an industry that poses few risks. A remote-working IT consultancy, for example, may only require £1 million worth of cover, while a building company that deals with dangerous and potentially hazardous materials in public spaces may need a policy that covers them for up to £10 million.
Trade bodies and associations
If your business operates in an industry which is heavily regulated or has associated trade bodies, it’s worth checking to see if there are any guidelines on how much public liability cover you’ll need. As well as guidelines, some trading authorities and other organisations require you to have a certain level of cover in place in order to be a member. For example, to be a member of the Association of Plumbing and Heating Contractors, your business must have a minimum level of £2 million worth of PL cover in place.
Finally, as is the case with any type of insurance policy, the level of PL cover your business requires, as well as how much you can expect to pay for your policy, may depend on your previous claims history. If you've needed to make a public liability claim in the past, this indicates to your provider that you are more of a risk than a company that has not had made any claims over a similar period of time. The size of your policy premium will reflect this.
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