Indemnity Insurance – The Comfort Blanket that Fails…

In this blog, Laura looks at indemnity insurance and how it is not always the reliable comfort blanket you think it is!

By Laura Rigby

Indemnity insurance – covering all legal and compensation costs resulting from a tribunal claim. The purpose of it seems far too good to be true… that’s because it often is!

And that is where the risk lies. Thinking you are protected against something that in reality, you are not, unless you deal with everything in such teeny tiny baby steps that more than mitigate you against every possible claim under the sun.

Time after time we’ve heard horror stories about how businesses have been forced to put up with a problem employee for far longer than they need to, simply because they feel they must jump through every hoop that’s given to them or they’re told they can’t touch them with a barge pole. All of this pain and heartache just to ensure that there’s no risk to the business whatsoever, purely so that they have the comfort of knowing that potential tribunal costs will be covered. Potential being the key word…

The likelihood of a reasonable employer losing at tribunal is slim, let alone being taken to one. Having up to date policies and procedures in place that comply with ACAS best practice as a minimum – and you following them – should be enough protection for day-to-day employee matters. Of course, for anything more complex, a little professional advice will go a long way.

But you’ll want the advice to be relevant and cause the problem to go away as quickly and as risk-free as possible! This may not be the case if you want to ensure your insurance is still valid. Most indemnity insurance policies are invalidated if the employer doesn’t consult the service provider or follow the advice to the exact letter. This is because the insurance companies don’t like paying out. It also means that the person giving the advice often shies away from making any recommendations or offering options and opinions based on their professional experience and knowledge for fear that they might be the reason the insurance is nullified.

Instead of taking many actions to avoid the rare worst-case scenario, wouldn’t it be great to get to the desired outcome quickly and as pain-free as possible? It’s my opinion that valuable HR providers give you options, outline risk and allow you to remain in control of your business and how it operates – of course, within the remit of the law and by treating employees fairly and reasonably!

What many SMEs don’t realise is that if things go Pete Tong, (which they shouldn’t if you follow policy and take reasonable actions), then there are steps that can be taken to resolve the issue before it even gets to court – which in most cases, won’t cost as much as a potential tribunal award AND you’ll have saved money in terms of time and effort.

Whilst of course I can understand the desire to protect your business against the costs a tribunal might bring and the reputational damage that coincides with it, but I’d urge you to consider providers that don’t offer indemnity insurance alongside their service, because in my experience, indemnity insurance is a comfort blanket that often fails.

A good outsourced HR provider will naturally focus on adding value to your business, ensuring you are legally compliant and handling matters fairly and reasonably without the need to go to tribunal AND with a bit of luck, you may even get to retain control over your people.