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The Cost of Public Liability Insurance vs. the Cost of a Legal Claim: Which is Cheaper?

Rhino Trade Insurance 22 August 2023

Life is filled with uncertainties. But, if you’ve got your head screwed on, you’ll want to make sure you have anticipated and prepared for some of the most common risks. In the business world, the need for protection against unforeseen events is especially important. Among various risk management tools, Public Liability Insurance stands tall as a safeguard against the significant costs which usually arise from accidents, property damage, or personal injuries. 

But how does the cost of public liability insurance compare to the expenses incurred in a full-blown legal claim? Today, we'll delve into the world of Public Liability Insurance and claims in the UK to discover which is the more economical choice.

Understanding Public Liability Insurance

Before we delve into the cost comparison, let's understand the essence of Public Liability Insurance. For businesses, especially those operating in public spaces or serving customers on-site, Public Liability Insurance provides coverage against potential claims made by third parties. These claims may result from accidents, property damage, or bodily injuries caused by the business's actions or employees.

Purchasing a policy with Rhino can see your business get tailored cover starting at £1 million, rising up to £5 million if you need extra protection.

The Premiums: Investing in Protection

When a business opts for Public Liability Insurance, it must pay periodic premiums to the insurance provider. The premium amount varies depending on several factors, including the size of the business, the industry it operates in, the coverage limits, and the risk assessment conducted by the insurer.

The premiums for Public Liability Insurance can range from under a hundred to a few thousand pounds per year. Smaller businesses typically pay lower premiums, while larger corporations with higher potential risks may have to bear more substantial expenses.

The benefits you receive

Although the upfront cost of Public Liability Insurance might seem like an added burden, it offers numerous benefits that can bring peace of mind to trade business owners. Firstly, it acts as a financial safety net in case a third-party claim arises. Insurance coverage helps cover legal costs, compensation payouts, and associated expenses, protecting the business's assets and reputation.

Secondly, Public Liability Insurance also offers intangible benefits. Knowing they are protected against unforeseen legal challenges, business owners can concentrate on running their operations without worrying about potential liabilities.

When assessing the cost of Public Liability Insurance, it's crucial to consider the policy excess. The policy excess is the amount the insured party must contribute to any claim before the insurance coverage kicks in. For instance, with Rhino, the policy excess is £500 as standard on all policies. So, with a claim amounting to £5,000, we will cover the remaining £4,500 after your business pays the first £500 excess. This can be reduced if you decide to purchase excess protection with us. 

Understanding the Cost of a Legal Claim

Further, we must consider the cost of a legal claim in the UK. Engaging in a legal battle is often an expensive and time-consuming endeavour. The expenses incurred during a claim can be significant, including solicitor fees, court costs, expert witness fees, and potential compensation payouts if the case is lost.

Let's explore some of the primary cost factors associated with a claim:

  • Solicitor Fees: Hiring a good solicitor is essential to navigate the complexities of legal proceedings. Solicitors typically charge an hourly rate, ranging from £150 to £500 or more, depending on their experience and the nature of the case.
  • Court Costs: Filing a claim and engaging in court proceedings incur certain fixed costs, which can add up during the course of a legal claim.
  • Expert Witnesses: In many cases, expert witnesses must provide their professional opinions on specific matters. These experts come with their own fees, which can be substantial.
  • Compensation Payouts: If the court rules in favour of the claimant, the business may be required to pay compensation to cover damages, medical bills, or loss of income.
  • Time and Productivity Loss: Engaging in a legal claim demands considerable time and attention from business owners and employees. This diversion can affect productivity and profitability.

Comparing the Costs: Crunching the Numbers

Now that we better understand the costs involved in both Public Liability Insurance and a legal claim, let's dive into a hypothetical scenario to compare the two.

Imagine a small electrician's business, "Dave's Electrics". The tradesperson serves an array of customers with his many years of experience. To assess the cost-benefit analysis, we'll consider two scenarios:

Scenario 1: Public Liability Insurance in Action

"Dave's Electrics" invests in public liability insurance with an annual premium of £800. One unfortunate day, a customer tripped on some wiring he left on the floor, leading to a broken wrist. The customer decides to file a claim, seeking £10,000 in compensation. Thankfully, Dave's Public Liability Insurance has a policy excess of £500.

Result: His business pays £500 as the policy excess, and the insurance provider covers the remaining £9,500 and the legal costs involved in handling the claim. The trade businesses' assets and reputation remain safeguarded, and they can continue their operations without significant financial strain.

Scenario 2: A Legal Claim

In this scenario, "Dave's Electrics" chose not to invest in Public Liability Insurance. Following the same accident, the injured customer decides to pursue legal action against his business, claiming £10,000 in compensation.

Result: The trade business faces substantial expenses, including solicitor fees of around £300 per hour and court costs totalling £1,500. Additionally, they need to hire an expert witness for £2,000. After a legal battle, the court rules in favour of the customer, and "Dave's Electrics" was ordered to pay £10,000 in compensation to the injured party on top of the other accrued costs.

In a nutshell?

The hypothetical scenarios above illustrate the stark contrast between the costs incurred when investing in public liability insurance versus facing a legal claim without adequate coverage. While the initial premium payment for Public Liability Insurance might seem like an added expense, it is a small price compared to a claim's potentially much higher costs.

As the old adage goes, "prevention is better than cure." In the business world, this saying rings true. Investing in Public Liability Insurance offers financial protection. It provides business owners with peace of mind, allowing them to focus on what really matters – delivering excellent products and services to their valued customers.

In conclusion, the cost of Public Liability Insurance is a small price to pay for the invaluable protection it offers against potential claims and legal disputes. By investing in this essential safeguard, businesses in the UK can navigate the uncertainties of the modern world with confidence and resilience, ensuring a secure and prosperous future.

Call our lovely team in the UK on 0116 243 7904 to talk about your cover, or take the DIY approach and get a quote online in just 60 seconds.

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