Liability insurance

How liability insurance works

The cost of insurance - known as the premium - is typically worked out using a book rating. A book rating is calculated using a base rate, which includes the insurer's costs and reflects their appetite for your particular type of business - if they want your type of business the rate will be less than if they don't.

The premium is also calculated on the insurer's estimate of the level of risk attached to a particular business or industry area.

The premium will be affected by factors such as your claims history, the size of the perceived risk and your approach to risk management.

The safer your working environment and the fewer claims you have made, the cheaper your premium should be.

Premiums are also calculated on the records of other similar businesses by lumping good and bad together - small businesses with a good record may be adversely affected by this. Your own safety record and approach to risk management can minimise the effect of this.

Employers', public and product liability

For employers' liability, the exposure risk is assessed on the basis of the number of employees and the size of the payroll. In addition, other initiatives such as Making the Market Work, which improve awareness of good risk management, also influence how risk is assessed. See the page in this guide on employers' liability insurance.

For public and product liability the exposure risk is based on the turnover and factors such as whether you work away from your premises. See the pages in this guide on public liability insurance and product liability.

Your insurance broker will be able to advise you of the most suitable insurer for your business type. Find a list of brokers on the British Insurance Brokers' Association website or search for a broker on the Institute of Insurance Brokers website.

Subjects covered in this guide

• Introduction
• How liability insurance works
• Employers' liability insurance
• Public liability insurance
• Product liability insurance
• Pollution risk insurance
• Property owners' liability insurance
• Professional indemnity insurance
• Directors' and officers' liability
• Seek specialist advice

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