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Help! I need public liability insurance but don’t know where to start

Gerry Donnachie, who heads up the small business underwriting team at AXA Insurance, answers your business insurance dilemmas

Question:

I’m about to start a cleaning business and have won a local government contract for it.

The contract says my business must have public liability insurance, but I don’t know what this is. Where should I go to get public liability insurance, and what are the benefits of having it?

Some expert advice here would be really helpful.

Startups.co.uk reader

Answer:

That’s a good question, and I think you speak for many start-ups with this one.

We know that just four in 10 businesses take out any form of insurance in their first year, but by the third year of operation most have acquired it. So, it is something you live and learn about – believe me, no-one is born knowing what public liability insurance is (not even me!).

If you’ve only worked on small or residential cleaning contracts so far, it’s unlikely your customers have asked about public liability cover. Public sector and government contracts almost always require it though.

It can also be a good selling point for your business anyway – it’s a hallmark of professionalism that’s reassuring for many potential clients.

Putting marketing to one side, there are some very strong arguments for why you would want this cover anyway: public liability insurance offers powerful protection for you and your young business.

Benefits of public liability insurance for self-employed business owners

If a client (or any member of the public) sues your business following an accident or damage caused by you, this insurance will take the financial hit for you. In a world of disputes, litigation and plain old bad luck, that can be a good safety net.

Public liability covers you in two scenarios:

  1. Someone suffers an injury due to negligence on your part – that could be your customer, their employees or somebody visiting the premises that you are cleaning;
  2. Or you accidentally damage somebody’s property.

Injury is the claim most people associate with public liability. Accidents can range from a slip on a wet floor or stumble over a trailing cable to a child drinking cleaning fluid left out by mistake.

If an injury leads to long-term complications, that’s when the claims can roll into the millions rather than the thousands.

That’s why a standard insurance policy for a small firm can cover you for up to £5m per claim. This figure includes any compensation you have to pay, plus legal fees, court costs and lost work time.

When it comes to property damage, you need to be careful. It is commonly assumed that public liability insurance will cover a cleaning business for all the contents at a location where they are working.

That is not the case; most public liability policies for cleaners will contain an exclusion relating to damage to property being worked upon.

So, for example, if you are cleaning a carpet, damage to the carpet as a result of your cleaning (say, by using the wrong fluid) is not covered. Purely accidental damage is, however, covered: if you knock over a vase while using cleaning equipment, then damage to the vase would be covered.

These are tricky distinctions. I’d strongly advise you to check what a public liability policy does and doesn’t cover ahead of purchase.

Do call your insurer to clarify where you aren’t sure. It is also often possible to extend the scope of a public liability insurance policy (for extra premium) so it covers the property you work on – but, again, that is a conversation with the insurer.

How much is public liability insurance?

How you buy a public liability policy will depend upon your level of knowledge and the complexity of your business. If you carry out fairly straightforward activities, you can purchase a policy online in minutes.

As a ballpark figure: if you’re a sole trader, with no employees, doing non-specialist cleaning work, a public liability insurance policy with a £5m cover level can be bought for £100 to£200 per year.

You’ll generally get a cheaper deal if you pay annually rather than monthly.

If your activities are a bit more unusual or specialised (say, you do blast cleaning or work at height), it may be better to pick up the phone and speak to an adviser, particularly for a first time insurance purchase.

And if you work in locations with obviously heightened risks – say, a hospital or scientific laboratory – then an insurance broker may well be your best option.

However you choose to buy, you’ll need to tell your insurer how long you’ve been in business and estimated business income for the coming year.

As a start-up, you’d only be expected to give a reasonable guess based on work anticipated. You’ll also be asked if you carry out any specialist work (like cleaning air ducts, tanks, blast cleaning, working at height, in hospital environments, etc.).

You’ll also need to decide how much cover you need, as you can usually choose from £1m to £5m.

This is where you do need to think carefully about just how bad it could be if something went wrong, bearing in mind the examples above and the locations where you work.

It is also worth looking at the terms of your contract, as local government often requires you to have a specific limit –  they have been known to request a £10m limit of indemnity.

‘Extras’ can often be added during a quote too – which will push up the price but can be very convenient to package under one policy. So, you can cover things like your equipment (both your own and hired in) or personal accident (which provides a wage if you are unable to work after an accident).

I’m assuming that as a start-up, it’s just you carrying out the work. But a word to the wise – if your cleaning business takes off and you plan to take on staff, even on a casual basis, you’re also likely to need employers’ liability cover.

This covers you for injuries or work-related illnesses among employees – and unlike public liability insurance, this one is legally required.

Finally, as your small business grows, do inform your insurer of any changes (if you acquire more staff, change premises, take on new types of activity or client).

Your cover can be invalidated if you fail to do so and keeping them informed will ensure you have the right level of cover at all times.

Gerry Donnachie, AXA Business Insurance

Want to discuss your insurance  case in more detail? You can call AXA’s advisers on 0330 159 1520. Lines are open Monday to Friday, 8am to 8pm, and Saturday, 9am to 2pm (calls may be recorded and monitored). You can also get a quote for a policy on the AXA website.