Could 1.1m UK sole traders be working without insurance?

A study shows nearly 1 in 3 self-employed workers do not hold insurance

A large number of the UK’s 3.8m sole traders could be personally exposed to the various risks associated with running a business, exclusive research carried out by Qdos in collaboration with Research in Insurance has revealed.

The study suggests that nearly one in three (29%) of the 400 self-employed workers surveyed do not hold any insurance at all, with more than half of this group - the majority of whom are sole traders - believing they do not need to take out a policy. 

Scale up this proportion to the UK’s entire sole trader workforce and the number of individuals working without insurance (29%) could equate to roughly 1.1m workers. But why is it that so many individuals are reluctant to take out insurance - particularly when it’s widely acknowledged that it’s vital for any sized business?

Well, aside from the 53% who do not think they need insurance, a quarter who do not hold a policy said it’s too expensive to buy. While around one in five stated they’ve never considered taking out a policy at all. 

8% of individuals without insurance are currently looking to take out a policy. The remaining individuals said they either can’t find the right policy or have the funds saved up personally, should they need to pay out for any reason. 

Given the vast majority of this group of workers do not operate through a limited company structure - known as a personal service company - the worry is that sole traders without insurance are personally liable.

If they have an accident in the workplace or make a mistake when working which, for example, causes financial loss to a client, they will need to pay personally to defend themselves in court and could be liable for damages or penalties. 

It is a similar story if, as a sole trader, you’re unlucky enough to face an investigation from HMRC. Should the taxman suspect you’ve evaded tax in any way and you want to challenge HMRC, if you’re working without insurance you will be required to pay to do this out of your own pocket. Tax enquiry insurance provides peace of mind and protection against an increasingly hostile HMRC. 

The good news is that plenty of freelancers and contractors do believe in the need for insurance, with public liability insurance the most common among the 71% of those holding at least one policy. Public liability insurance covers you when a client or other third-party takes legal action against you in respect of injury or damage to property caused through your work. This type of insurance is designed to cover the costs of defending your case and, when needed, pay any resulting damages that might be owed.

Professional indemnity insurance is also a widely held policy among sole traders. 35% of the workers surveyed hold this insurance, which protects you against the various costs involved in legal disputes and loss of earnings should you be called up for jury service. Other policies, such as contents insurance, buildings insurance and life insurance were also common among these workers.

The research also suggested that sole traders who do not work independently, whether by collaborating with others or employing people, are more likely to hold some form of insurance - with 92% of those with 2 or more people in the business holding a policy. However, this figure falls significantly among solo workers, with 62% insured. Perhaps this is to be expected, given that any sole proprietorship with more than one worker - whether permanent, part-time or temporary - is required to hold employers liability insurance which, in effect, insures for claims brought against the business as a result of this engagement.

Of the self-employed individuals who shared their views with Qdos, 95% of those with an average annual turnover of more than £50,000 have protection in place for their business. Those earning under £50,000 a year are less likely to hold insurance (63%).

With UK self-employment on the rise, the possibility that many independent workers could be operating without any insurance in place whatsoever is a cause for concern. From legal disputes to injuries and HMRC enquiries, many of the financial risks that running a business poses to sole traders are unavoidable. 

Learn more about Qdos Contractor’s range of insurance policies for sole traders here.