Abbey is doubling the standard indemnity of its legal expenses package to £100,000, in a promotion similar to one it launched last year.

The move effectively cuts the price by up to 30%, although the product does not automatically include contract cover.

Abbey, which targets companies with a turnover of less than £1m, said the cover will “provide protection for clients who could face legal costs plus the new maximum tribunal award, which now stands at £51,000”.

The most common payout in an employment tribunal in 1999-2000 was between £1,000 and £1,999. The average payout is £2,515.

But DAS, Abbey's main competitor, said the move would not lead to a price war. Underwriting and product development manager David Haynes said: “Cover going up and cost going down doesn't make sense.

“It doesn't fill us with any great fear (and) it won't send us racing to slash our rates.

Abbey business development manager Leo Gibbons said the company was prepared for industry criticism, of the type it weathered over its aggressive pricing move last year.