Economy opens door on legal policies

Doom and gloom predictions for the UK economy are now heard daily and increasing numbers of businesses are suffering. With managers becoming aware of the fragile nature of their markets, many are making enquiries into what legal insurances are available should things go wrong.

With the credit crunch taking its toll, redundancies are rising rapidly. Despite having hit a record number of 29.5 million people employed in the UK in April, the British Chambers of Commerce forecast in July that 300,000 jobs could be lost by the end of 2009. To compound matters, employment tribunal applications are on the rise as employees look to protect themselves from what they consider unfair dismissal. "We have seen a 20 to 25% increase in (unfair dismissal) applications this year," claimed Mark Mansell, people and offices partner at solicitor Allen & Overy. "Employers are finding themselves under increasing legal pressure."

Financial Services Authority regulations dictate that all commercial lines brokers have access to basic legal cover. However, while many brokers are able to offer these services, a proportionately smaller number are cashing in. Abbey Legal Protection estimates that, of approximately 600 broker partners, 80% of its business comes through 100 large-sized players.

Chris Ward, managing director at Abbey Legal Protection, highlighted the difficulty for brokers: "Most businesses are not aware that legal protection cover is available." Many insurers offer services to help brokers sell legal products ranging from marketing leaflets to raise client awareness to broker training. While larger policies are created on a bespoke basis, most legal protection covers can be added onto an existing commercial policy, providing a cross-selling opportunity.

The good news is that legal expenses insurance is more affordable than it was the last time the economy took a turn for the worse. "The adoption of legal protection schemes has enabled brokers to develop comprehensive propositions, often tailored to meet the needs of a niche book of business," said Lyndon Willshire, head of sales and marketing at DAS Legal Expenses.

SMEs are at the greatest risk. Small firms can rarely afford the same risk management systems as large corporations, making them more vulnerable to errors. Norwich Union estimates that current take-up of directors' and officers' cover in the SME sector is only around 25%, regardless of directors' heightened risk of exposure to claims of misconduct from creditors and employees when businesses are struggling.

"The employment and credit crisis means that businesses are a lot less stable," said David Vine, business development manager at Allianz Legal Protection. "Without legal expenses cover, businesses are leaving themselves open to far more costs in the long run."

What's available

Directors' and officers' cover - Cover protecting directors and officers of a business against personal liability for business decisions.

Legal expenses cover - Insurance against legal costs should a dispute occur with typical cover of up to £100,000 for one claim. This type of cover often includes a legal advice helpline or access to barristers or solicitors.

Employer's liability cover - Cover for the insured's legal liability to pay damages and claimants' costs and expenses following injuries sustained by employees.