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Home Tradesman Insights Cracking the Code: How Is Your Public Liability Insurance Calculated?

Cracking the Code: How Is Your Public Liability Insurance Calculated?

As a tradesperson, having the right insurance in place is crucial for protecting your business. Public liability insurance is one of the most important covers to have, as it protects you if a third party is injured or their property is damaged as a result of your work.

But how is your public liability insurance premium calculated? The cost of public liability insurance can vary significantly depending on your trade, the size of your business and more. Read on to find out the key factors that determine how much you’ll pay.

What is Public Liability Insurance?

Public liability insurance is designed to cover compensation costs if a member of the public is injured, or their property is damaged, because of your business activities.

For example, if someone trips over your tools at a worksite and sustains an injury, public liability insurance could help pay for their medical bills and any loss of earnings. Or if a pipe you installed springs a leak and floods a client’s home, public liability insurance can cover repair costs.

Without adequate public liability cover, you could face massive costs that could put you out of business. That’s why calculating the right level of cover for your trade is crucial.

Why Public Liability Cover is Vital for Tradespeople

Public liability insurance is especially important for tradespeople who often carry out work on third-party property and interact with members of the public regularly. Key reasons you need cover include:

  • Membership requirements – While public liability insurance is not mandatory in the UK, it may be required by certain membership bodies or professional organisations you are a part of
  • Client requirements – Many businesses or clients will want to see proof of cover before hiring you as it gives them peace of mind
  • Financial protection – Public liability cover is there to protect your business financially. Without insurance, you could lose everything if faced with a substantial claim

It’s important to note that public liability insurance is solely for covering harm caused to third parties like customers. For protection of employees, you need a separate employers’ liability policy, which is a legal requirement.

Typically, public liability also doesn’t cover claims arising from professional mistakes or poor workmanship – for that, you’d need professional indemnity insurance. Many tradespeople take out both policies as part of a comprehensive package.

How Is the Cost of Public Liability Insurance Calculated?

The cost of public liability insurance can vary considerably depending on your trade, your chosen insurer and the level of cover you choose.

For some sole traders, public liability insurance may start from around £60 for £2 million annual cover. But for larger businesses, especially those in riskier industries, costs may be much higher.

When you apply for public liability insurance, insurers will consider multiple risk factors that can substantially impact the size of your premium.

Your Industry and Business Activities

The industry you work in will have a significant influence on your required cover and premiums. Trades that involve manual work or use of heavy machinery, such as construction, are seen as riskier than trades like retail or web design. They therefore typically face higher premiums.

If your work requires you to visit client sites, you also take on greater public liability risks that insurers will account for. Any trade where you regularly interact with members of the public raises the chances of an incident occurring, which again increases insurance costs.

The Size and Scale of Your Business

Insurers will look at the number of employees you have and your overall company turnover when assessing your public liability risks.

Larger businesses inherently carry greater risk exposure, which often translates to higher premiums. Companies with a greater turnover and more clients suggest higher volumes of public interactions and activities, elevating the probability of claims.

Your Business Location

Where you physically operate your business from is another pricing factor. A premises situated in a busy shopping district or high foot traffic area indicates greater public liability risks than working from an industrial estate or home office.

Location also considers the nature of the site itself – a construction firm operating on bustling city sites will typically pay more for public liability insurance than one based in a rural area.

Your Claims and Complaints History

Insurers will thoroughly examine your past history of claims, incidents and customer complaints when pricing your policy.

Multiple liability claims for injuries or property damage in your history points to higher risks and the likelihood of future claims. A completely clean claims record, on the other hand, may demonstrate that you run a lower-risk business, resulting in cheaper insurance costs.

Choosing the Right Level of Public Liability Cover

Deciding how much public liability cover you need to fully protect your business is crucial. Here are some key considerations to keep in mind when choosing your cover limit:

  • Trade bodies and associations may recommend specific minimum amounts of cover. For example, a minimum of £2 million is suggested for building contractors
  • Larger contracts often require set cover levels. Government contracts may need £5 million while enterprise clients can specify £10 million
  • Consider the maximum claim payout you could potentially face based on your activities and locations. High foot traffic areas may need higher cover
  • Analyse historical claims and complaints for similar businesses – if they are substantial then you may wish to increase your cover limit accordingly
  • If you employ subcontractors, you’ll need enough cover to account for their activities too
  • Buy more cover than you think you need – don’t be tempted to opt for the cheapest policy based on cost alone. It’s better to have excess cover than to be underinsured if an incident occur

Companies specialising in tradesman insurance, such as Tradesman Saver, can provide cover based on your specific industry and business needs. Their expertise can prove invaluable to ensure you have adequate protection.

Tradesman Talk

Do you think tradespeople underestimate how much public liability cover they need? What level of cover do you have or would you recommend for other businesses like yours?

Let us know your thoughts, insights and experiences in the comments, and don’t forget to share this guide if you found it useful.

Until next time, make sure it’s Tradesman Saver.

Dean Laming

Dean Laming is a Chartered Insurance Broker with more than 25 years insurance experience. Through various underwriting, operational and management roles, Dean has built up extensive knowledge of how to run a business and is now Managing Director of Tradesman Saver, part of the wider Henry Seymour Group.

All articles by Dean Laming

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