The government is considering waiving the requirement to obtain employers' liability insurance for limited companies that employ only their owner. This would bring the treatment of these companies into line with unincorporated businesses and would lift the requirement to insure from over 300,000 of the smallest businesses. A report is promised by March 2004.

Businesses have faced growing costs for employers' liability insurance. Premiums rose by an average of 50% in 2002, according to a study by the Office of Fair Trading (OFT), although some sectors suffered much larger increases. Small and medium-sized enterprises have been hit particularly hard, as have high-risk businesses such as roofing and scaffolding. The rise continued, though at a lower rate, in 2003, and it is predicted that increases will average 10-15% in 2003/04.

Employers' liability insurance, which protects a business against claims from employees for accidents or sickness through work, is compulsory. The legal minimum cover is £5 million and certificates must be displayed in the workplace. The OFT report examined claims that some businesses had been unable to obtain insurance at any price but did not come to any definite conclusion on this point. Although the OFT found no evidence of a widespread withdrawal of insurance, in some cases insurers were quoting prices that were so high as to amount to an effective refusal of cover.

Several factors have caused the increases, among them the greater propensity for employees to engage in litigation, the general increase in insurance costs following the terrorist atrocities of 11 September 2001 and the growing cost of resolving claims. The government is working with employers, trade unions, lawyers and others to improve the efficiency of the claims resolution process in order to reduce the sometimes disproportionate amount of legal costs.

Meanwhile, if your insurance quote has increased excessively, you should try shopping around. Some insurers are specialising in those sectors where they have the greatest knowledge or expertise in assessing or pricing the risk. It is often possible to reduce premiums by accepting a greater level of policy exclusions. However, you should consider the impact on your business of having to meet a greater part of the cost of a claim yourself. Buying employers' liability insurance as part of a general business insurance package may be easier and cheaper.