STINGING rises in the cost of insurance are putting South Lakeland businesses in jeopardy and biting into local authority budgets, raising fears of future Council Tax increases, writes Michaela Robinson-Tate.

Business owners and council chiefs are being forced to dig deep as insurance expenses spiral following the September 11 terrorism attacks.

Some small firms have even closed because they struggled to find insurance cover.

Liability insurance, particularly for businesses considered "high risk", has been particularly affected.

Nicola and Andrew Kaye, who run the popular Fun for Kids Fun Factory in Kendal's Parkside Road, were stunned when their insurance company quoted £15,000 to renew the public and employer's liability policy, which had previously cost them £5,700. This was despite having had no claims during their seven years of operation.

After trying numerous companies and being quoted as much as £25,000, the best offer the couple could find was £10,000.

They even went to the expense of getting a clean bill of health from the Royal Society for the Prevention of Accidents in a bid to help their case, and approached Westmorland and Lonsdale MP Tim Collins, who promised to help. Customers rallied round, offering to start petitions in their support.

Unsure what to do, the Kayes' insurance expired, and they were forced to shut their business for two days last week, losing some party bookings.

Mrs Kaye, 32, said: "We thought we were going to lose the whole thing. It was very frightening."

Finally they managed to find a specialist firm to give them cover for a similar deal to their original policy.

Mr Kaye, 35, said September 11 was being used as an excuse to sting businesses. He plans to join a national scheme of people with similar businesses to the Fun Factory who are to band together to achieve a fairer deal on insurance.

Ben Lyon, the managing director of Lyon Equipment Ltd of Dent and Tebay, has also faced insurance problems.

The company, which employs 40 staff and this year had a turnover of more than £6 million, sells equipment for sporting use, such as climbing ropes and harnesses, and supplies the work market with equipment used for working at height. It also manufactures slings and flexible ladders.

When the firm came to renew its policy, its insurance company would not even offer a quote, even though Lyon rarely has to make a claim.

When Lyon finally got insurance it cost almost £100,000 in total more than 40 per cent up on the previous year. Insurers appeared to consider Lyon "high risk" because it manufactures and offers expert product training.

Mr Lyon blamed the compensation culture in which claims were made for the "slightest thing".

Partner at Kendal's Talbot Insurance Brokers, Haydon Munslow, said mergers and acquisitions had reduced the number of insurance companies, and therefore the number of policies available. He said the effects of September 11 were rippling through the industry and a large number of claims by employees were also forcing up prices.

Mr Munslow said at least two small businesses locally had ceased trading after failing to find insurance. His company was advising clients to build in a 15 to 20 per cent rise in their insurance budget for next year.

"In a situation where there are fewer insurers putting prices up, what they are then saying is we are only going to do things we make money off, and they are not making money off liability insurance," he said.

"It's a Government issue now, a social issue, because the Government is realising it can restrict the growth of the economy, particularly if smaller businesses can't afford insurance."

Chairman of the local business affinity group of Cumbria Chamber of Commerce, George Read, said insurance firms were demanding "disaster plans" to prove companies could recover quickly from an incident like a fire or flood. Without such a plan, premiums would rocket, he said.

The building industry is understood to have been hit particularly hard.

Martin Nicholson, managing director of housebuilder Russell Armer, said his company's insurance had risen "significantly".

South Lakeland District Council's own liability insurance has shot up by 38 per cent over the last year. Insurance officer Martin Mason said if the increases continued eventually services would be affected or Council Tax could rise.

Westmorland and Lonsdale MP Tim Collins said he believed "no win, no fee" insurance claims, which he regretted the previous Conservative Government had introduced, should be overturned to discourage spurious claims.

January 3, 2003 12:00