Employers’ liability penetration at UK SMEs has hit a new low, according to data analytics firm GlobalData.

Its UK SME Insurance Survey found the penetration rate for the cover is just 62.5%, leaving many open to the risk of large payouts if one of their employees is injured.

Employers’ liability is required by law but GlobalData says SMEs are exempt as long as they have one employee who is a director and owns 50% or more of the capital, or if they only employ family members or staff outside the UK. But such SMEs represent a small proportion of the total.

“This [penetration] is low for a product which is required by law,” GlobalData Insurance Analyst Ben Carey-Evans said.

“Follow-up questions identified that the key reasons as to why SMEs who need to have such insurance did not have it in place were that SMEs were willing to take the risk as a need to cut costs, and being unaware it was legally required.”

Some 15% of respondents who did not have the cover in place said it was because they did not know it was a legal requirement.

“The 2021 penetration rate of 62.5% is the lowest in the last four years,” Mr Carey-Evans said.

“This indicates that some SMEs could have decided against this type of cover, as budgets have been squeezed by COVID-19, or maybe did not take up on renewals, which fell during periods of lockdown.

“Yet, COVID-19 could help insurers in the longer term. If more SMEs turn to brokers for advice to make sure that their business insurance is fit for purpose, or even simply conduct more research before purchasing insurance for the same reason, the proportion of SMEs who are unaware that employers’ liability insurance is a legal requirement will come down.”