With the current economic climate, many businesses are looking for ways to reduce costs wherever possible. One area that is often overlooked is liability insurance, specifically the limit of indemnity.
While it may seem appealing to reduce cover to lower premiums, doing so can end up costing your business far more in the long run if you are sued. Here are some reasons why businesses should consider increasing their liability limits of indemnity:
Rising Cost of Claims
The cost of legal claims in the UK continues to rise year after year. The average value of liability claims has increased dramatically over the past decade. The legal landscape is becoming increasingly complex and the cost of defending against claims is rising.
Reducing your limits of indemnity might save a bit on insurance premiums but it could leave you seriously underprotected if you are hit with a large claim. Paying anything above your limit of indemnity will come directly out of your businesses pocket, or even your own pocket, if you are a sole trader or a partnership.
Rise in Litigation Funding
Litigation funding from third-party companies that front legal costs in return for a share of proceeds are on the rise in the UK. This has enabled more claims to be brought against businesses that may not have otherwise been pursued. Having higher indemnity limits reduces the chances an underinsured claim could significantly impact your finances.
Implications of Aggregate Limits
With liability insurance, limits of indemnity come in two forms:
Per Claim Limits - the maximum amount the policy will pay out for any single claim
Aggregate Limits - the total limit that can be paid out for all claims combined during the policy period
Having sufficient aggregate limits is crucial for businesses that may face multiple claims in a single year. That's why it's important to evaluate both your 'per claim' and 'aggregate' limits when considering increasing coverage. You should make sure that you have ample protection per claim, but also in total across all claims.
Boosting aggregate limits reduces the likelihood that multiple claims will exceed your total coverage ceiling, during the policy period.
Contractual Obligations & Industry Standards
Many contracts and industry standards require specific levels of liability coverage. By exceeding these requirements, businesses not only ensure compliance but also demonstrate a commitment to high standards of responsibility and integrity, potentially attracting more clients and partners.
While paying for increased liability limits represents an added expense, it is minor compared to the massive costs your business could incur from just one underinsured claim. Consult with your insurance broker to evaluate your specific needs and risk exposure. Paying a little more now for sufficient indemnity limits could save your business from financial ruin.