Rules and ethics
Business insurance regulations in England: what is compulsory
Which business insurance is compulsory in England: employers' liability, motor third-party cover, and the cover a regulator, licence or contract can require.
Two covers are compulsory by law for an operating business in England: employers' liability insurance once it takes on staff, and motor insurance for any vehicle used on UK roads. A gap in either can be penalised without any claim being made. Other requirements come from regulators, licences and contracts.
What to take away
- Employers' liability cover is needed as soon as a business becomes an employer, at a minimum of £5 million from an authorised insurer.
- Employers' liability gaps carry a daily fine of £2,500, and a missing certificate display can bring a fine of up to £1,000.
- Third-party cover is the legal minimum for a vehicle on UK roads, and driving without the required cover is an offence.
- Business use, drivers and ownership must still be confirmed for each vehicle.
- A regulator, licence or contract can make further cover compulsory.
Employers' liability starts with the first employee
Employers' liability cover is compulsory from the day a business becomes an employer. GOV.UK sets the cover at no less than £5 million from an authorised insurer. The test is the employment relationship, so check it against the facts rather than a job title.
The duty sits principally in the Employers' Liability (Compulsory Insurance) Act 1969 and the Employers' Liability (Compulsory Insurance) Regulations 1998. GOV.UK says the cover helps pay compensation if an employee is injured or becomes ill because of the work they do for the business.
Some employers fall outside the requirement. A sole director who owns 50% or more of the company's shares can be exempt, and close family members employed by the business can also fall outside it. GOV.UK also lists someone based outside England, Scotland and Wales, so territorial facts need checking.
Employment status matters as well, so confirm each worker's status before deciding that the requirement does not apply. A firm planning its first hire can see when a business needs cover in step with growth.
The daily fine and the certificate
A business can be fined £2,500 every day that it lacks proper employers' liability cover, according to GOV.UK. The cover must come from an authorised insurer, so check the insurer on the Financial Conduct Authority register before relying on the policy.
The certificate carries its own duty. GOV.UK says to display it where employees can access it, for example at the workplace, on the website or on the work intranet, and to show it to inspectors when they ask. Failing to do so can bring a fine of up to £1,000.
Treat the certificate as part of the insurance record. Keep the policy schedule, the dates of cover and the insurer's contact details with it, and name the person who holds the current document. That way a lapse is noticed on a named date rather than discovered by an inspector.
Motor cover for vehicles used in the business
The legal minimum for using a vehicle on UK roads is cover for other people, and the requirement sits in the Road Traffic Act 1988. GOV.UK says third party insurance is the legal minimum, covering damage or injury to any other person, vehicle, animal or property.
That minimum does not pay for repairs to the business's own vehicle. A firm that wants those costs covered has to choose a wider class of policy and read its wording. Driving without the required cover is an offence, and enforcement can include prosecution, a fine, penalty points and seizure of the vehicle.
Holding a policy is not the same as holding the right one. Business use, permitted drivers, ownership and the class of cover must be confirmed for each vehicle and journey. A policy written for private use should be checked against how the vehicle is actually used before anyone drives it for work.
Cover that a regulator, licence or contract requires
Statute is not the only source of compulsory cover. A sector regulator, a licence, a professional body or a contract can each require insurance. Solicitors, for example, must hold professional indemnity insurance that meets Solicitors Regulation Authority rules.
A premises licence granted under the Licensing Act 2003 can carry conditions that require public liability cover. Customer and supplier agreements can name cover type, limit, insured parties and notification duties, which is why commercial contract clauses belong in the same check.
| Cover | Where the duty comes from | What to check |
|---|---|---|
| Employers' liability | Employers' Liability (Compulsory Insurance) Act 1969 and the 1998 Regulations | Employees, authorised insurer, certificate displayed |
| Motor third party | Road Traffic Act 1988 | Business use, drivers, ownership, class of cover |
| Professional indemnity for solicitors | Solicitors Regulation Authority rules | Whether the policy meets those rules |
| Public liability for licensed premises | Conditions of a premises licence under the Licensing Act 2003, where they require it | The wording of the licence conditions |
Running the check in four steps
Answer four questions in order, and write each answer down with its date. The record is what you show an insurer, an inspector or a customer later, and it shows that the question was asked before anything went wrong.
- Does the business employ anyone, or is it about to? If so, confirm employers' liability cover and the certificate.
- Does anyone drive a vehicle for work? If so, confirm the class of cover, the drivers and the use.
- Does a regulator, a licence or a professional body set an insurance condition?
- Does a customer or supplier contract require named cover, limits or evidence?
Keep the answers in an insurance planning template, and review them whenever staff, vehicles, premises or contracts change. Disclosure, advertising and data duties sit in the wider UK rules guide.
Once the compulsory covers are fixed, compare quotations like for like so the required cover is bought on equal terms rather than on price alone.
Before you act
- Check whether the business is an employer and needs Employers' Liability insurance.
- Confirm the insurer is authorised and the certificate is displayed and available to inspectors.
- Confirm the right class of vehicle cover for each journey and driver.
- Check licence, regulator and contract conditions for named cover.
- Record each answer with a date and an owner.
Common questions
How much can a business be fined for lacking employers' liability insurance?
The daily fine is £2,500 for each day without proper cover, GOV.UK says. Failing to display the certificate or show it to inspectors can bring a fine of up to £1,000.
Is third-party motor cover enough for a business vehicle?
Third-party cover is the legal minimum, but it does not cover repairs to the business's own vehicle. Business use, permitted drivers, ownership and the class of cover must still be confirmed.
Can a contract make insurance compulsory?
A contract can require named cover, limits and evidence even where no statute does. Read each customer and supplier agreement for cover type, insured parties and notification duties.
