Royal & Sun Alliance (R&SA) has warned businesses are not protecting themselves against the financial threat posed by employment tribunals.
The insurer warned that despite a drop in the number of employment tribunals, the costs of tribunals are on the rise.
Figures released by the Employment Tribunal Service show that average awards in 2002/3 increased by 15% for unfair dismissal. The threshold for unfair dismissal awards is also rising and now stands at £53,500, it said.
Mike Bird, employment practices liability product leader for Royal & Sun Alliance said: "The need for EPL should not be been seen as a criticism of firms' HR professionals or their practices, but simply as a sensible precaution.
"However well thought out HR procedure is, it is impossible to legislate against individual rogue actions, furthermore it can be hard to keep ahead of fast changing legislation. Irrespective of the outcome of a court case business could end up facing costs that extend into several millions of pounds in legal and claims costs."
