A growing number of new founders are operating without financial protection, according to new research, with just four in ten having any kind of insurance cover.
The study, by insurance firm AXA, asked founders of firms started in the last three years where they were protected, and found a majority believed they were “too small” to need any insurance cover.
Worryingly, 59 per cent of respondents with staff members had risked running their business without employers’ liability insurance – the most serious gap in protection.
Required by law, employers’ liability insurance covers workplace injuries and illness, and business owners not covered can incur substantial non-compliance penalties of up to £2,500 for each day without it.
According to the survey’s findings, it wasn’t tight profit margins pushing new founders to avoid covering their business, but an under-appreciation of risk.
Almost three-quarters of those operating without protection believed their business was too small to be at risk, while a quarter hadn’t considered it at all. Just eight per cent claimed they were avoiding the costs of insurance cover.
Commenting on the study, Gareth Howell, managing director at AXA Direct, gave a warning to micro owners who felt secure without insurance cover.
“We regularly settle injury claims on behalf of microbusinesses that top the million pound mark,” he said.
“That isn’t unusual these days at all, and the amounts claimed in compensation are likely to increase following the government’s change to the Ogden Rate in March of this year. Added to that is a significant rise in property damage claims too, as the value of fixtures, fittings and floorings is going up in British properties across the board.”
Britain’s freelance professionals were found to be the least insured demographic. Just a quarter of those in their first three years of trading had professional indemnity cover, leaving them without protection for alleged breaches of intellectual property and data protection laws.
Howell added: “We anticipate that claims against small firms will increase in value, and they are affecting a wider spectrum of occupations than ever before. Compensation culture has played its role here. Having a greater proportion of young businesses in the economy also contributes, as they can be less prepared for pitfalls and mistakes than firms that have been around longer.”
Insurance in action – Professional indemnity insurance for micro businesses
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