Public liability insurance is a means by which unlikely but devastating events can be incorporated into a business strategy. Nothing is completely predictable. There is no absolute law that says an object released in a gravitational field will fall. However, the probability of such an event occurring is so close to 100% that it near as makes no difference.
We are able to aim at points in space and time with incredible accuracy. We are able to predict how gravity will behave but are still unable to say with certainty that it will be so.
Liability insurance both public and private exists to service areas of doubt and uncertainty. Accidents happen. Ships sail with their bow doors open. Bits of aeroplanes fall off. Something goes wrong in a canning factory and suddenly thousands of people have a tummy upset, or worse.
Insurance reduces the downside risk. It asks first about the likelihood of a particular event occurring. It then asks what the actual consequences of such an event would be. Finally it puts a price on the worst possible outcome.
An actuary is a man who has chosen his profession because he can’t take the rough-and-tumble of accountancy. Basically, employers liability insurance is betting and actuaries compile the odds.
Generally the house always wins. While pay-outs from disasters like Hurricane Katrina and the Japanese Tsunami can be enormous these events are by their nature few and far between. Premiums are payable every year whether or not a disaster happens.
The reason some insurance premiums are skyrocketing right now is not because more accidents have happened, but because parts of the insurance industry put their money in the wrong place.
We refer, of course, to the wonderful mire of sub-prime mortgages. Each one of these was underwritten by an an insurance company. And, as the whole ghastly mess slowly unravelled the insurance industry received the biggest bailout in history.
This is why it’s difficult to find decent, cheap liability insurance. You may be insuring against a meteor strike but you could also be paying next year’s bonus for a chap in a striped shirt with a taste for vintage Krug.
If you want to do business in Britain today you have no choice whatsoever.