When responsible for the safety and satisfaction of members of the public or a large number of employees, having sufficient liability cover is necessary to avoid heavy financial repercussions.

Take the real-life case of one 23-year-old, who sustained a serious brain injury following a construction-related incident and who was awarded compensation. 

Due to factors including the 2017 and 2019 reviews of the Ogden rate – the calculation used by insurers and courts to determine how much compensation the affected party should receive following a catastrophic injury – the claimant’s compensation was adjusted from £7.6 million to £19.3 million. 

Had the policy that this sum would have been covered by had a typical public liability policy limit of £5 million, the contractor would have been forced to pay £14.3 million from its own pocket. 

In other words, it is essential for companies in high-risk sectors to secure an adequate level of protection from both public and employers’ liability policies. 

Where public liability insurance protects you against claims for property damage and/or personal injuries which were caused to third parties by the nature of your company’s activities, employers’ liability insurance provides employers with cover for compensation payouts to employees who have made successful claims. 

For work that comes with a greater risk of injuries and accidents, it’s important to secure higher limits of indemnity – the maximum amount of money which insurers will pay to the claimant on your behalf when a successful claim is made against you. 

The good news is that in liability insurance, the set limit of indemnity is always the amount of cover you will be provided with for each claim so you will not be limited in a policy year. 

Unfortunately, the bad news is that acquiring an appropriate level of cover is not as simple as you would hope. 

Ogden’s obstacles 

Obtaining optimal financial protection from public liability insurance can be tricky for companies in certain sectors because there is little or no guidance on what limit you should hold – one way around this is to directly seek guidance from a specialist insurance broker. 

This is dissimilar to employers’ liability which has a statutory minimum of £5 million, meaning your policy must cover you for at least this amount. 

Both types of insurance are however impacted by familiar foes such as Brexit, Covid-19, claims inflation, general inflation and the rising cost of materials and labour, brought about by supply chain disruption – all of which need to be considered by insurers when deciding on cover limits.  

Adding another spanner into the works is the growing value of personal injury claims, the high costs of which can easily exceed typical limits of indemnity. 

In part, the increasing value of these claims is down to rising care costs, improved chronic pain diagnoses and the technological advancement of tailored prosthetics. But they’re not the only reasons.  

“Arguably, the biggest factor which has pushed up personal injury claims over recent years has been the changes in the Ogden rate,” said Angela Irvine, sales director at Birmingham-based insurance broker, The Bletchley Group. 

“In 2017, the rate was lowered from +2.5% to -0.75%, reflecting the low investment returns being achieved. This was a major issue for insurers as claims reserves had to be immediately reviewed and there were consequently impacts on insurer balance sheets.” 

Set by the government, the Ogden rate provides a discount which is applied to the compensation sum awarded to a claimant after the figure has been adjusted to take into account the claimant’s age, gender, mortality and how much interest or investment returns they could expect to earn from that sum. 

In 2019, the Ogden rate was reviewed and increased from -0.75% to -0.25%. 

“With personal injury claims rising as a consequence of the increased Ogden rate, companies need to ensure that their limit of indemnity will be enough to cover them,” Angela said.

“This is especially important at a time where we are expecting a 10% increase in general damages recommendations set by the Judicial College Guidelines. The cost of personal injury claims are only going one way.” 

So with the odds stacked against you, how important is it to obtain an appropriate level of cover?

Solutions for security 

Before making any final decisions, you should ensure that the indemnity limit you are aiming for is one which safeguards your business’s solvency, profitability and brand. 

If you have a large number of employees working in one location, it is even more important to obtain a higher limit of indemnity for employers’ liability. 

This is because there is a far greater chance you will have high value claims made against you and more frequently.

Prior to settling on a policy, it is advisable to review your current policy limits. 

If they are not enough, or if the current insurer isn’t able to offer higher limits, consider acquiring excess of loss insurance which provides additional cover to businesses to help top up your existing limits. 

“The best way to stay protected is by planning ahead. Establishing and securing a high enough level of cover at any time in the policy year is essential. The sooner the better.”  

This article was featured by the National Federation of Builders.