Cost vs. Benefit Analysis of Public Liability Insurance for Startups

The information provided in this article is for editorial purposes only and not intended as financial advice. SwitchPal is an Introducer Appointed Representative (IAR) of Seopa Ltd. (FRN: 313860).

When you’re setting up a new business of your own, the costs can be significant, and insurance can be one of those things that you might feel you can cut back upon. But while public liability insurance can feel like an unnecessary luxury, there are good reasons why new businesses should have it. 

What is Public Liability Insurance?

Public liability insurance protects against claims made by third parties for bodily injury or property damage. It is designed to cover the legal costs and compensation of such claims, ensuring businesses can operate without fearing financial ruin. You could be sued if you visit a client and accidentally damage their property. If a client visits you and hurts themselves, the same could happen.

Why Do Startups Need Public Liability Insurance?

There are good reasons why it’s more important for startups to have public liability insurance. It gives investors, customers and suppliers confidence that you’re serious about your responsibilities and allows you to take more risks. New businesses are prone to teething errors, and insurance also protects against those. 

There are further reasons why startups must look closely at public liability insurance. It could be a legal requirement for you to have it, and if you’re in a business or industry in which you’re required to do a competitive tender, you may well find that those issuing the tender expect it. And, of course, public liability insurance protects your business and, consequently, gives you peace of mind.  

Cost of Public Liability Insurance

Public liability insurance has become more expensive in recent years, but there are reasons for this. The number of court claims brought in recent years has increased, while inflation has also resulted in higher compensation claims and payouts. 

These general trends are important in determining premium costs, but other, more specific factors also come into play. The nature of your industry plays a vital role in determining public liability insurance costs. At the same time, the size of your business and previous claims history are also important factors that are considered. 

Commercial building insurance costs can be found to be around £218 to insure a typical small business property in the UK with a £200,000 rebuild cost. However, properties that cost more to rebuild also cost more to insure. For example, a commercial building with a £500,000 rebuild cost would cost around twice as much to insure. This is considerably higher than the average public liability insurance cost of around £118 per month. 

Public Liability Insurance for Limited Companies

It’s not a requirement to have any specific form of insurance because your business is a limited company. The only legal requirement is employer liability insurance if you employ anyone, but that applies equally to sole traders. 

But that isn’t to say there aren’t commercial advantages to being fully insured for all eventualities. Being covered in this sort of way makes a statement about the sort of business that you run. It demonstrates to customers, clients and prospective new staff that you take your obligations as a business seriously. In some sectors, legal insurance requirements will stretch far beyond legal minimums. 

General Liability Insurance vs. Public Liability Insurance

When comparing General Liability Insurance (GLI) and Public Liability Insurance (PLI), important differences must be considered. 

PLI protects explicitly against claims from third parties (such as customers, visitors or passers-by) who suffer injury or property damage due to your business operations or negligence. It covers accidents occurring on your business premises or while you work at a client’s location. This could include slip-and-fall incidents, accidental property damage, or injuries caused by your business activities.

GLI builds upon PLI, offering broader protection against various third-party claims. In addition to bodily injury and property damage, GLI may include personal injury claims such as defamation, libel, slander, and other risks. It covers injuries to vendors, employees, and even yourself. It also addresses issues like defective products or “advertising injury.”

Employers Liability Insurance vs. Public Liability Insurance

You should also be aware of the potential for litigation claims from former employees. Employers Wider Protection: Employers Liability Insurance (ELI) again has a broader scope than PLI. ELI specifically protects your employees and anyone your business is responsible for if they’ve been accidentally injured or fallen ill due to work.

Examples: If a waitress in your café sprains her ankle, that’s an employer’s liability claim. ELI steps in here. PLI focuses on external claims, while ELI centres on your employees’ well-being. Both are essential for comprehensive business protection. 

Professional Indemnity vs. Public Liability

Professional Indemnity Insurance (PII) protects against claims arising from professional negligence or incorrect advice given to clients. It covers financial losses resulting from mistakes in your work that impact clients. If, for example, a consultant provides faulty advice leading to financial loss for a client, for example. 

PLI covers claims made by the public for injury or property damage caused by your business activities. It protects against accidents on your business premises or while working at a client’s location. PLI handles such incidents if a customer slips and gets injured in your shop. PII focuses on professional errors, while PLI addresses injuries or property damage related to your business operations. 

Is It UK Law for Businesses to Have Public Liability Insurance?

Public Liability Insurance is not a legal obligation in the UK. Things are different for Employers’ Liability (EL) insurance, which you must take out as soon as you become an employer - your policy must cover you for at least £5 million and come from an authorised insurer. The Health & Safety Executive can fine up to £2,500 daily for every day you’re not insured. 

High-Risk Public Liability Insurance

While claims are possible in any form of business, some industries are more risky than others. High-risk Public Liability Insurance is Public and Employer liability insurance for more dangerous occupations.

This includes many trades, including scaffolders and roofers, heat workers, such as welding/fabrication and plumbing and heating contractors, and those working in dangerous environments, such as civil engineers, diamond drilling, and ground workers. Due to the nature of their work, high-risk occupations need specialist insurance coverage.

How are Public Liability Insurance Rates Calculated?

Public Liability Insurance (PLI) rates are calculated based on several factors. Different trades pose varying risks, so insurers assess the likelihood of claims based on your trade sector. Size also matters. Larger businesses may pay higher premiums due to increased exposure. Other factors may include your claim history, coverage limit, excess amount and location. 

There are steps that you can take to lower your premiums. Most importantly, since this is wholly within your control, only claim when you need to and honestly assess the coverage you need. Both over and under-estimating can be expensive! 

Any form of insurance above and beyond your legal responsibility has an element of the gamble about it. It might well be -  indeed, it is to be hoped - that you never need to make a claim. But insurance isn’t for those times. It’s for when things go wrong and when the unforeseen or unexpected happens. It may well be that Public Liability Insurance feels like a luxury, but plenty of businesses will confirm that there can often come a time when it doesn’t any more.