SMEs are leaving themselves wide open to potential crippling losses and legal claims amounting to more than £3billion, by failing to have the right level of business insurance.

This is the verdict from independent research conducted by business insurance specialist Premierline Direct.

Nearly a third - 30 per cent - of the business owners questioned do not have business insurance at all, despite the fact that more than half are concerned about the growing ‘blame and claim’ culture.

Of those that do have business insurance, not all are covered for the essentials. Only 34 per cent of SMEs have employer’s liability cover, which is compulsory if the company employs anyone, and less than one in six have business interruption cover, which would prove invaluable in helping a business survive an incident that caused loss of income.

While commercial legal protection may be offered as an optional extra to a standard insurance policy, only 17 per cent of entrepreneurs have this cover. With the average cost of defending an employment tribunal claim estimated to be around £9,000, it is an expense that businesses cannot afford to pay out of their own pockets.

Chris Little, managing director of Premierline Direct, said: “With more than half of the UK’s small businesses collapsing because of cash-flow problems, most small businesses can’t afford to take risks and business insurance is one area a company shouldn’t be operating without. It’s worrying news that company owners appreciate that they are putting themselves at risk but there is a significant gap in the level of cover they have, particularly in key areas such as employer’s liability, public and products liability and business interruption cover. Without the right level of insurance protection, litigious costs brought against a business can unfortunately turn a successful company into one that falls flat.”

Not only are businesses failing to have the right cover within their policy, but many are putting themselves at further risk by underinsuring their assets. Only 40 per cent of small businesses have re-valued their business’ assets in the last 12 months so that in the event of making a claim, they could find they will not receive a payout that will cover the actual replacement cost.

Malcolm Tarling from the Association of British Insurers said: “Small- and medium-sized firms make up the backbone of UK plc, and are particularly vulnerable to any unforeseen event, such as a flood, that could financially cripple them. That is why having adequate insurance protection must be an integral part of every business strategy. Without it, livelihoods are at risk.”

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