Uncovered: Majority of start-ups operate WITHOUT insurance for first three years

60% of all small employers lack basic cover for their staff, such as workplace injury or illness, with most likely to be breaking the law

While all entrepreneurs are natural risk takers, a new study by AXA shows that many small business owners may be taking this concept a little too far – by operating without insurance.

It’s survey of nearly 500 businesses has revealed that the majority of start-ups formed within the past three years operate without basic cover, with just 40% admitting they have insurance of any kind.

For those employing staff, 60% lack basic cover for their workers, such as workplace injury or illness, with most likely to be breaking the law.

Insurance cover for employees, such as employers’ liability insurance, which covers workplace injuries and illness, is a legal requirement for all businesses – with serious penalties for non-compliance.

Worryingly, just 41% of respondents who have taken on eligible staff said they bought this specific cover – with businesses found guilty of non-compliance likely to face fines of £2,500 for every day they operate uncovered.

When quizzed on why they opting against taking out insurance for their start-up, the majority of entrepreneurs were unconcerned about price, thought to be the most likely factor, but instead had an under-appreciation of risk.

72% of those without cover said their business was ‘too small’ to need it and 25% considered it at all. For comparison, just 8% said it was too expensive and 3% had forgotten to renew.

In its research, AXA further noted that claims for small businesses are changing too.

‘Trade specific’ claims, such as industrial deafness, vibration white finger or RSI (repetitive strain injury), have fallen significantly in the past three years – with these claims are increasingly being anticipated and mitigated by business owners via better risk management.

By contrast, ‘non trade’ claims have more than doubled since 2014 – namely because they are less easy to anticipate and affect nearly every form of business.

Examples could include an employee slipping on a loose carpet, someone hurting their back lifting a heavy parcel, falling from step ladders or even being scalded by a hot drink spill.

Looking at the wider UK economy, freelancers are least insured section, with just a quarter of those in their first three years of business having professional indemnity cover.

The figure changes little for older businesses, where the rate of indemnity insurance is just 35%.

This insurance covers costs for compensation following alleged professional negligence, including breaches of intellectual property and data protection laws.

While not legally required, it is often strongly advised by professional associations, as these claims, though rarer than injury claims, can be financially ruinous to an unprotected business.

Gareth Howell, managing director of AXA Direct, said:

“The key finding of this survey is that people are operating businesses without insurance because they think they are ‘too small’ or ‘too young’ for risk. We see no evidence in our claims figures that this is the case: we regularly settle injury claims on behalf of microbusinesses that top the million pound mark.

“That isn’t unusual these days at all, and the amounts claimed in compensation are likely to increase following the government’s change to the Ogden Rate in March of this year. Added to that is a significant rise in property damage claims too, as the value of fixtures, fittings and floorings is going up in British properties across the board.”

Axa is headline sponsor of Startups 100 2017, the longest-running index of the best new businesses in the UK.