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Increased limits of indemnity – are you covered? 

Published: 22/08/2017

Increased limits of indemnity – are you covered? 

In our day-to-day dealings with customers setting policy limits for Public and Employers' Liability usually turns out to be one of our most challenging discussions. 

Buildings, Stock, Fixtures and Fittings are, in the main, easier to value and apply index linking to protect the business. However, deciding on the extent to which you cover your firm for your legal liability for bodily injury to a third party or employee can be much more difficult.

Many policy limits are dictated by contractual terms—most policies apply a minimum limit of cover of £10m for Employers' Liability. This is just the policy limit and not a limit on your exposure to claims from a third party or employee.

Following much publicised changes* to the Discount Rate for personal injury claims, we are hearing stories about Employers' and Public Liability claims that have subsequently been reassessed and are now found to be exceeding policy limits, e.g. one insurer has had an EL claim rise from £8m to £16m. With ‘Standard’ Cover for an Employers' Liability claim sitting at £10m, this would leave the insured person with a £6m shortfall. And certainly not the type of communication any business wants to receive from their insurer! 

Until now we have rarely seen claims exceed the limit of indemnity provided, however, the amendment to the insurer's discount rate has created a situation where the potential for this to happen has greatly increased.

As your insurance broker it is our duty to keep you updated and informed about any changes that may affect your insurance cover and ultimately the protection of your business. Many businesses must now consider increasing their EL and PL limits.

Increased limits are not charged on a pro rata basis, i.e. cover for £2m is not double the cost of £1m -  sometimes the additional limits of indemnity can amount to a very small additional premium. And potentially a small price to pay for a big peace of mind.

When assessing your liability limits, we look at the amount of work you do and severity of the risk involved in that work, such as;

  • Heat
  • Hazardous Goods
  • High Risk Locations
  • Exposure to Children and Leisure Industry

You will need to consider extending limits depending upon specific risk information.

Obviously, clerical and low risk trades should pose a much lower risk, but we always mention the insurer who picked up a £5m+ claim for an ‘architect’ who, whilst being covered under a very low premium office policy, fell through a sky light on a site visit.  

*Notes on Ogden

We explained these changes in an earlier edition of this newsletter, however, just to recap –

Following the Ogden review the discount rate provided in respect of personal injury claims was amended from 2.50% to -0.75%.

This change has been made to protect the position of claimants who cannot rely on high investment returns in the current investment environment.

Prior to the change, insurers were allowed to discount the amount of compensation awarded by 3.75% per year to reflect an investment return that should be able to be generated when lump sum payments are invested.

The change to the discount table has resulted in much higher costs to insurers as a consequence and a significant increase in the total settlement of a claim.


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