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Liability Insurance: Are You Paying Too Much?

If you are running a business right now, the chances are that coronavirus is having an impact on your operations. If your activity declines your business turnover and wage roll costs decrease, it is important to understand how these reduced figures can affect the cost of your Liability Insurance.

The first thing to know is that the price of Liability Insurance is based on your estimated wages, turnover and payments to sub-contractors for the coming year. Most insurers use these figures to assess the risks you face and calculate a ‘deposit’ premium for the coming 12 months.

When the policy ends, you provide ‘declaration’ figures to the insurer, which by then are known for the trading period. The insurer compares these declaration figures to your deposit figures to establish if any additional premiums are due.

Example 1 - Estimated turnover is less than actual turnover

*Estimated Turnover: £1,000,000 = £1,000 premium
Actual Turnover: £1,500,000 = £1,500 premium

In this instance, you pay an adjustment premium of £500 at the end of your policy plus any Insurance Premium Tax.

However, it is important to remember that if your business does not do as well, most insurers DO NOT provide a rebate on your premium.

Example 2 - Estimated turnover is greater than actual turnover

* Estimated turnover: £1,500,000 = £1,500 premium
Actual turnover: £1,000,000 = £1,000 premium

In this instance, you are unlikely to receive an adjustment fee from your insurer.

Liability Insurance: Getting it right

Given the current uncertain economic climate, example 2 could well apply and we recommend you carefully assess the estimates you provide and adjust them for any anticipated business downturn.

Of course, while it may be tempting to give reduced estimates to reduce your premium, it is important to give accurate figures to meet a good balance between your deposit premium and any necessary year end adjustment.

There are different methods available to manage this and if you would like more information or some help to understand how this would work for your business then please contact us.

* Examples used are for illustrative purposes only and do not represent any specific Trade

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