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A third of small and medium enterprises (SMEs) are worried about the growing ‘compensation culture’, so why do less than a fifth have Employment Practices Liability Insurance? That’s just one of the findings of the first Hiscox SME Risk Barometer survey, which found out what’s keeping SMEs awake at night.

While typical worries such as tax, rising rents and the economy come top of the list, the threat of staff bringing legal action has some employers paying more attention to risk management. This follows a rash of high-profile discrimination cases; sex discrimination suits, for example, were up by 20 per cent in the year to July 2006.

Gary Head, Professions Underwriting Director at Hiscox, says: “The publicised cases tend to involve high-fliers who are very well-paid and therefore want a lot of compensation, but smaller companies have exactly the same problem. If they create a hostile working environment, the costs and wasted time can hurt their bottom line.”

“The survey reveals some significant gaps in businesses’ level of cover,” says Gary (see graph, below). He says products such as EPLI are “just one element of a good attitude to managing risk”.

While adequate cover can go some way towards protecting against legal action, shouldn’t companies head off problems at the pass by educating staff about proper workplace behaviour in the first place?

Gary acknowledges that this is a necessity, in principle as well as legally. Under UK and European law, however, the employment situation is growing increasingly complex. Expecting the management to understand the laws with no dedicated HR department is fairly unrealistic.

Gary concurs: “Most directors in small companies will never have needed to be an expert in HR law.” He suggests they take advantage of BusinessHR, a free online information resource available to all Hiscox business policyholders. “It is there to put the meat on the bones of how companies go about tackling risk management – for example, how to conduct yourself during an interview.”

For example, directors must ensure that their employees understand what’s expected of them. “You can never remove the risk altogether, but if a change in culture starts at the top of a company, the likelihood of a problem occurring lessens over time.”

Gary adds that change doesn’t happen overnight. “What was acceptable behaviour in the past sometimes no longer is. For example, if you interview someone and say you want to hire someone young and dynamic, it could be seen as age discrimination.”

Here, brokers have an opportunity to help their customers not only understand the risks of increasingly complex laws, but also find out how they can protect themselves and their companies from trouble down the line.

“After all,” says Gary, “no one wants to end up on the wrong end of an employment tribunal.”

Most popular business insurances among SMEs

To learn more about Employment Practices Liability Insurance, get in touch with your Hiscox underwriter

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