Employers’ liability rate for SMEs drops to new low as many accept the risk

SMEs are exempt from legal requirements if all they have one employee who is a director and owns 50% or more of the capital or if they only employ family members or staff outside the UK (though these SMEs represent a small proportion). This is low for a product required by law, and a follow up question identified SMEs willing to take the risk, a need to cut costs, and being unaware it was legally required as key reasons why SMEs who need to have such insurance did not have it in place.

The relatively low penetration rate for employers’ liability is a long-term trend identified by our annual UK SME Insurance Survey. Previous editions of the survey found that only 65.4% of SMEs held it in 2020, 65.5% in 2019, and 63.4% in 2018.

While this is a long-term trend, it is something insurers should look to change. 15% of respondents who did not have this cover in place stated it was because they didn’t know it was a legal requirement, representing a target audience that insurers should try to reach through education. The 2021 penetration rate of 62.5% is the lowest in the last four years, which indicates that some SMEs could have decided against this type of cover, as budgets have been squeezed by COVID-19, or maybe did not take up on renewals, which fell during periods of lockdown.

Yet COVID-19 could help insurers in the longer term. If more SMEs turn to brokers for advice to make sure that their business insurance is fit for purpose, or even simply conduct more research before purchasing insurance for the same reason, the proportion of SMEs who are unaware that employers’ liability insurance is a legal requirement will come down.