What could de-rail the most rapid rise in self-employment in history?

More than two million people have started a business in the past three years as the UK experiences the most rapid rise in self-employment in its history.

According to a recent survey by AXA, the momentum shows no signs of letting up as a further 3.5 million people say they are planning to go self-employed.

However, it would appear that these budding entrepreneurs are natural risk takers with most operating uninsured – essentially not underwritten against risk in any way – according to AXA’s latest small business study.

Most start-ups founded in the past three years operate without any cover – just 40% told the study they had insurance of any kind. By the start of their fourth year in business this figure has improved to 60%, but still leaves a large slice of the country’s business activity unprotected.

The most serious gap is in employers’ liability insurance, which covers workplace injuries and illness.

It is legally required and businesses can incur serious penalties for non-compliance, but the survey found that just 41% of those who have taken on eligible staff have this cover. Fines can reach £2,500 for each day that a company operates without this insurance.

The most common reason not to cover the business was not price, as would be expected for a new business working to tight profit margins, but an under-appreciation of risk. 72% of those without cover said their business was ‘too small’ to need it and 25% hadn’t considered it at all. For comparison, just 8% said it was too expensive and 3% had forgotten to renew.

Gareth Howell, Managing Director, AXA Direct said: “The key finding of this survey is that people are operating businesses without insurance because they think they are ‘too small’ or ‘too young’ for risk.

“We see no evidence in our claims figures that this is the case: we regularly settle injury claims on behalf of microbusinesses that top the million pound mark. That isn’t unusual these days at all, and the amounts claimed in compensation are likely to increase following the Government’s change to the Ogden Rate in March of this year.”