European companies are not buying enough liability insurance, according to a new report by Marsh.

The report, Limits of Liability, which surveyed 1,000 European companies, was released at the Federation of European

Risk Management Associa-tions (FERMA) forum in Rome.

It found that, on average, European firms bought 11% less liability insurance in 2003 when compared to 2002, down from an average of ¤55m to ¤49m.

The survey also revealed that across the region, the average cost of liability insurance increased by 82%, from €8,339 to €15,196 per ¤1m of cover.

The report found that UK firms buy an average of ¤67m in cover, with chemicals and pharmaceutical companies and transportation businesses buying the most cover.

UK firms pay less than their European counterparts, with an average price of ¤7,480 per ¤1m of cover, but this is due to higher levels of self-insurance in the UK rather than lower rates, according to the report.

Managing director of placement services at Marsh, Guy Malyon, who edited the report, said that the larger companies, with revenues in excess of $10bn, ran counter to the trend by increasing their liability cover by 7% in 2003.

But he said that smaller firms should consider increasing their cover.

"We would suggest that they should consider buying more," Malyon said.

He said that businesses in the personal, business services, hotels and amusements sectors that bought an average of only ¤25m in liability cover in particular should look to increase their limits.

But Malyon said that appropriate limits were difficult to set, with several factors to consider.

These included industry sector, size, markets and regions the company operated in and future claims inflation.

"We're setting limits now that have to pay for claims in five years time," he said.