The government is facing calls for insurance law reform as steep increases in liability premiums threaten small firms with collapse.

Mike Williams, chief executive of the British Insurance Brokers' Association (BIBA), will on Wednesday urge senior Treasury officials to impose strict limits on liability awards against employers.

He is also expected to call on insurers to offer liability cover to employers via "pooling" arrangements, with several large companies spreading the risk between them.

The reforms are aimed at reversing recent increases in liability premiums which have put about 500 small firms out of business, and could threaten up to 10,000 more, the BIBA claims.

Financial squeeze

BIBA blames the higher premiums on a sharp deterioration in insurers' own finances because of rising compensation claims and the impact of 11 September.

"It's an accumulation of many different factors," said a BIBA spokeswoman.

"11 September has been an issue, asbestos has been an issue, and so has the recent decline in the stock market."

Tumbling share prices have in recent months reduced insurance companies' investment returns, putting their finances under added strain.

BIBA believes that while some firms have gone out of business when faced with unaffordable premium increases, many others have chosen to continue trading without insurance - in breach of UK law.

Big businesses, better able to absorb sudden cost increases, have been hit less hard by the higher premiums.

Superseded

One small Glasgow-based manufacturing firm was earlier this year asked to pay an employer liability premium totalling �34,000 - an increase of 1,700%.

And department store Selfridges' annual premium rose by �400,000 to �1.9m, BIBA said.

Employee liability cover, introduced in 1969, was originally designed to insure employers against the cost of treating staff who suffered injuries at work.

But BIBA claims the original legislation does not offer employers enough protection against rising numbers of claims, fuelled in part by a growing "compensation culture".