Accounting for accidents

Insurers should be fearful of the increasing number of claims and the spiralling cost of compensation. A recent report forecasts personal injury claims costs will rocket to a staggering £11bn by 2007, an increase of almost 200%.

Policyholders should also be concerned about these figures: after all, premiums are a function of claims costs. And nowhere is this issue more important than in the context of liability insurance: for as the current liability crisis deepens, if a business wishes to obtain cover, it must make every effort to ensure that its claims experience is kept to a minimum.

While taking steps to prevent incidents happening in the first place is a primary concern, it is also essential that should an accident occur, the insurer's chance of defending any claim is maximised and that any costs are kept to a minimum. This is where insurers and policyholders must work together.

According to Zurich casualty manager Jamie McNab, prompt notification of claims and incidents that may lead to claims is very important.

"Insurers need to find out pretty quickly. On average it takes six to nine months to find out about a serious injury, by which time the case has gone cold. If you then have to go back to look at what took place it becomes very difficult to identify details," he says.

"Early notification is a priority if you are to investigate the matter and amass information while memories are fresh and machinery is still there to be examined. It enables the insurer to bring the claim to a swift conclusion and prepare a better defence."

But while this may seem obvious, this does not always happen in practice for various reasons.

"Employers' systems vary. Some will respond rapidly, while others are not so good. That's just society," says McNab.

"The insurance angle is often forgotten as the events have a life of their own. In some cases of serious injury, notification can take a year, 18 months or even three years. In one case someone was paralysed and it took two years to be advised."

Surprise claim
McNab points to construction risks as being particularly problematic: "People move on and the site changes. What was once a hole in the ground is now a structure, and the contractors have disappeared."

Sometimes the employer does not even know about the incident. "The employee may attend hospital without the employer's knowledge. The employee may then go to a solicitor who processes the case, and a few months later a claim turns up at the employer's premises," says McNab.

Proper record keeping is also vital, says Royal & SunAlliance (R&SA) technical insurance manager Phil Bell.

"In employers' liability, if the policyholder really wants to help the insurer defend the claim, he must keep proper records of health and safety matters," he says.

"He should keep a record of whether protective clothing is provided, whether employees are shown how to use it and whether it is maintained. Details of any training that has been provided should also be recorded."

Documentary evidence of risk assessments is also important, says Bell. "A lot of health and safety law is based on the employer undertaking risk assessments. Insurers need evidence that they have been undertaken, the findings and actions taken."

The rationale behind keeping comprehensive records is obvious: "If you don't have proper records it is difficult to build a strong defence. Detailed records show that the company has good working practices," says Bell.

"Ultimately, the defence can be only as good as that permitted by law. The fact that the accident happened suggests there is a problem. But when there is a valid defence, it is important to have evidence to back it up."

Yet despite the importance of record-keeping, many companies still do not do it, comments Bell.

"Some companies are quite good; others keep no records. Where no records are kept, the whole management of health and safety is usually not what it should be - and the claims experience will suffer."

"We have met with risk managers to stress the importance of good record-keeping. It is their claims experiences and their premiums at stake."

Zurich's McNab also points to pre-employment medical screening as a good way for employers to protect themselves. "They allow the employer to spot any pre-existing conditions that may be exacerbated by the work," he says.

Rehabilitation services
Some insurers are starting to offer rehabilitation services to get injured people back to work. This not only improves the insured's claims costs, but also benefits society as a whole.

According to Datamonitor insurance analyst Liz Hartley: "The UK only returns 10% of people back to work after a serious injury, compared to 50% in Scandinavia."

McNab is a strong advocate of rehabilitation: "Loss of earnings is a big part of the claims cost. It is therefore important to get people back to work as soon as possible. We believe rehabilitation is the way forward."

But for rehabilitation to work it is vital that the insurer becomes involved at an early stage, says McNab. Prompt notification of the incident is therefore essential.

McNab also points out that rehabilitation does not work with all types of claim. "It is more suited to musculo-skeletal injuries, such as back injuries, rather than cuts," he says.

Adversarial system
Yet despite its benefits, people are not always receptive to rehabilitation.

"There has been a mixed reception to it. Some are totally sold on the idea, others less so," says McNab.

"It needs cooperation to work. Legal people can be uneasy about it; they are sometimes sceptical of insurers' motives. The adversarial system has built-in tensions and this may be part of the problem. All we can do is make the offer.

"Nevertheless we are fairly successful in getting co-operation to perform rehabilitation. But sometimes the structure of the insured company doesn't lend itself to it this type of programme."

R&SA's Bell agrees: "It is difficult as the legal system is adversarial. The claimant's solicitor must encourage his client to work with the insurer to get the programme up and running immediately after the accident. Speed is important."

What one insurer is doing to reduce claims costs
Zurich's Able to Work programme operates on a number of levels.

Early risk management - to help reduce the number of accidents

Notification commitment - the policyholder commits to notify Zurich of specified incidents within an agreed number of days. Zurich provides a contact number and pro-forma question sheet which, to assist the policyholder, can be emailed.

Monitoring - Zurich will provide occupational health nurses to monitor the recovery of the injured party. The aim is to get the employee back to work as quickly as possible and Zurich will provide private rehabilitation and treatment if necessary.

Zurich casualty manager Jamie McNab says that in one case, the use of private treatment saved Zurich £35,000. Had the NHS been used, the claimant would have had to wait 18 months for treatment, so the loss of earnings would have been so much greater.