Small businesses continue to ignore the risk of costly legal action even though defending an average case could potentially put them out of business, says research from FirstAssist Legal Protection.

The research, conducted at this year’s Biba conference in Manchester, reveals that over three quarters (81%) of brokers believe that no more than a quarter (25%) of their clients could withstand the cost of a significant legal action without legal expenses insurance (LEI). This is a significant amount and remains at a similar level to last year.

The research also found that 44% of brokers felt a lack of awareness around the risk posed by legal action was the biggest barrier to selling the cover.

The potential threat of legal action – the majority of which are driven by workplace disputes - is made clear by Ministry of Justice figures. There were 236,100 accepted employment tribunals in 2009/10, up by 56% on the previous year.

The Federation of Small Businesses, commenting on the market earlier in the year,said: “In recent years there has been a deluge of employment legislation; much of it protective of the employee. Employment tribunal activity has increased significantly and so too have costs, time, complexity and awards. Tribunal costs remain virtually unrecoverable.”

Graham Hollebon, managing director at FirstAssist Legal Protection, believes there is an opportunity for brokers and insurers to raise both the awareness and understanding of LEI in the small business community and to help protect companies against the costly and very real threat of legal action.

He said: “Our research found that at least half of the SME market remains completely unaware of LEI and, for those who are aware, there is a serious lack of understanding about the types of policies available.

“Whilst an SME can still potentially bring or defend a range of legal cases via alternative means, this option is set to decline or disappear as a result of the Jackson reforms.

“It is more important than ever that the BTE insurance market responds and not only increases small businesses’ awareness of the risks they face, but also helps them to put in place appropriate cover to give them peace of mind and to safeguard their future."

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