Just four in ten UK businesses operate with insurance in their first three years, with 74% of those without cover saying they are not big enough.
That is according to a study by insurance firm AXA, which reveals a quarter of new businesses without cover say they have not even considered it, but that just 8% believe it is too expensive.
Many of these firms are believed to be neglecting their legal requirements, with 59% of those taking on staff doing so without liability insurance cover for workplace injuries and illness – risking fines of £2,500 each day.
And this problem is expected to get worse, after more than two million people started a new business in the past three years, and a further 3.5 million plan to go self-employed over the next 12 months.
“People are operating businesses without insurance because they think they are ‘too small’ or ‘too young’ for risk,” AXA Direct managing director, Gareth Howell, said. “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 compensation is likely to increase following the change to the discount rate.”
It was also found that ‘trade specific’ claims, such as industrial deafness and repetitive strain injury, have been falling over the past three years, as firms increasingly manage to anticipate and mitigate them.
However, ‘non trade’ claims, which are harder to anticipate, have more than doubled since 2014, with compensation reaching hundreds of thousands of pounds and affecting every type of business.
The research also shows that freelance professionals are the least insured section of the economy, with just a quarter in their first three years of business having indemnity cover – leaving them at serious risk of financial ruin.
“We anticipate that claims against small firms will increase in value, and they are affecting a wider spectrum of occupations than ever before,” Howell continued. “Compensation culture has played its role here.
“Having a greater proportion of young businesses in the economy also contributes, as they can be less prepared for pitfalls and mistakes than firms that have been around longer.
“Insurance should be considered an essential piece of financial protection from day one.”gh to need it.