Most people understand the need for adequate public liability insurance to protect them against claims made against them but how much cover do you actually need to make sure you are properly covered against the risk of you being sued?
What limit of indemnity do I need?
This question is most commonly asked regarding the limit of indemnity under a public liability insurance policy, although it is a relevant question for other classes of insurance including employers liability and professional indemnity.
What is a limit of indemnity under an insurance policy?
The limit of indemnity is the maximum amount of the insurer’s liability for any claim or claims under a policy. Each policy will state whether the limit is;
- Any one occurrence in which case the the limit of indemnity is the maximum payable in respect of any one claim
- Any one occurrence and in the aggregate meaning that the limit of indemnity is not only the maximum in respect of any one claim but also the maximum the insurer will pay in a single year.
Choosing a limit of indemnity under a public liability policy?
It is for each client to determine the level of cover they require under a public liability policy. For most businesses and undertakings, this is not a legally required insurance and consequently there is no set limit.
Common limits of indemnity are £1m, £2m, £5m and £10m although other limits are available.
Whilst the selection of the limit is a matter of choice for most businesses, there are some trades and occupations that carry a minimum limit within membership of trade and regulatory bodies for instance a gas fitter, in order to receive approval, must carry a minimum of £2m public liability insurance.
To determine the limit that is appropriate for you, you need to look at the type and nature of the work you are involved in and make an assessment of what a catastrophic loss for you would look like, what’s the worst that could happen? Clearly someone engaged in a clerical occupation is much less likely to cause a significant loss than someone who is bolting wings onto an aircraft!
Contractual and Local Authority Requirements
For many the decision regarding the limit that is appropriate for them is predetermined by the requirements of contracts they are party to. Many employers will request a given limit of indemnity in their contract terms and conditions and this is often higher than a business might ordinarily take. Similarly local authorities and government bodies will often require any one working on or any organisation using their facilities to carry a certain limit, this is often £5m or £10m. If you need these higher limits to comply with the requirements of others then that’s the limit you have to take or refuse the work.
How much does it cost to increase the limit of indemnity?
Under public liability insurance, using a base limit of £1m it will generally cost approximately an additional 20% of the premium to increase the limit to £2m and a further 20% to increase to £5m. These increases are clearly not pro-rata, but this makes sense when you consider that for most undertakings it is the first £1m of cover that is genuinely at risk of claims.
Limits of indemnity under employers liability insurance
The statutory minimum level of cover required by most employers is £5m although in practice insurers issue policies with a standard limit of £10m. Higher limits are available where appropriate.
If you would like further information on limits of indemnity on public liability or any other class of insurance, please feel free to contact one of our brokers who will be happy to help.