SMALL firms pay substantially more for employer and public liability insurance than big firms, according to consultants, Deloitte & Touche.
A root and branch study of Irish insurance costs by the consultants was published yesterday by the Minister for Commerce Science and Technology, Mr Pat Rabbitte.
Liability insurance protects firms from the cost of claims by employees and members of the public for personal injuries received in the workplace. The cost to larger firms is as low as 0.35 per cent of turnover and 1.4 per cent of payroll costs. But for firms employing 10 or less people the average cost is 1.8 per cent of turnover and 8.1 per cent of payroll costs.
With over one third of manufacturing operations employing less than 10 people, this finding was important in terms of the development of small businesses. Insurers were showing a "clear and pronounced differential treatment" against small firms and in favour of larger firms, Mr Rabbitte said yesterday
Loadings carried by small firms were "enormous" compared with those faced by larger companies, he said. He referred to the practice among some insurers of applying a set-up cost to small firms seeking insurance. "In the case of one insurer, the set-up cost is an annual charge. This may strike some people familiar with logic and the English language as something of a contradiction in terms," he said. While insurers should look at the cost structures they applied to small firms, the firms could do more to help themselves, the consultants stated. Poor compliance with health and safety regulations and poor claims experience as a group were among the reasons why small firms faced higher insurance charges, according to the report. Other reasons included less knowledge of buying and weaker negotiating positions.
Small firms should try to improve their claims experience by paying attention to risk management and safety issues. They should shop around to reduce their insurance costs. They were not well informed or well served buyers of insurance, the consultants found.
Small firms should ensure that their brokers were "energetic" in seeking alternative quotations and advice on developments in the market. They could form affinity groups to benefit from collective purchasing power, the consultants suggest.
The consultants found that while the claims record of the firm is the main factor determining the liability premiums for the large firm, the small firm was rated on the overall claims record of the sector. Therefore a small firm had much less scope to improve its position by its own actions the consultants said.
However, the consultants found that awareness levels and compliance with health and safety legislation was at its lowest in firms employing between three and 10 people. Attention to health and safety issues was important for all firms, the consultants warned. "Management should promote it as a bread and butter issue, and ensure that staff buy into safety compliance".
The consultants were critical of the Government's commitment of resources to the Health and Safety Authority. The HSA is at half the strength of its counterpart in Britain in terms of the national labour force, according to the consultants. They recommended that its resources and powers be increased to the relative strength of the British Health and Safety Executive.
