Risk managers split over US-style no-fault system

Risk managers cannot agree on a single approach to tackle the employers' liability compulsory insurance (ELCI) crisis.

In its submission to the Department of Work and Pensions (DWP) ELCI review, Airmic suggested that the adoption of defined benefits compensation or a workers' compensation fund "is worthy of detailed consideration".

But Airmic executive director David Gamble said that its membership is not in agreement on any single approach.

"We know the thing is broke, we just don't know how to fix it yet," he said. "Some of our members are very keen on the no-fault approach, but others have had a difficult experience with it in the US."

Last week, Insurance Times published Marsh's response. The broker said a no-fault system had "yet to be proven".

Airmic said a compensation fund solution would move emphasis from what triggers the loss to trying to prevent it. It would focus on compensating the injured party and would also reduce the costs created by an "adversarial" system.

It also said improved risk management is a crucial part of better managing ELCI, and that for risk management to be effective, risks must be identified, described, estimated, evaluated and reported on a regular basis.

In its submission to the review, QBE-owned insurer Iron Trades described the current system as "unsustainable", but advocated "reform rather than radical change".

It said that a fault-based system should be maintained as "the right to introduce arguments of contributory negligence and defend claims is fundamental".

Iron Trades disputed the idea that a no-fault scheme would drive legal costs out of the system, saying that any reduction in legal costs would "be more than offset by likely increases in claims frequency".

To deal with legal costs that are disproportionate to awards, the insurer suggested "a fast-tracking approach with the emphasis on mediation with reasonable fixed costs for small claims where there is no dispute on liability".

What the Federation of Small Businesses said
The Federation of Small Businesses (FSB) said the current ELCI situation "demonstrates clear evidence of market failure".

It said: "Unless the issue is addressed whereby it is compulsory for a business to have EL insurance, but not compulsory for the insurance market to provide it, many other small businesses may also have to close."

The FSB's main concerns with the current ELCI situation centre on access to, and the affordability of, EL insurance for small businesses. It said the sectors hardest hit are construction, engineering, waste management and scrap metal merchants.

The FSB is calling on the Treasury to use some of the revenue raised from the insurance premium tax to form a pool for EL.

What the CBI said
The CBI said "urgent action is required".

It suggested greater use of structured settlements, that insurance premium tax be reduced or abolished, increasing the notification period for premium renewals to 60 days and tackling "compensation culture" by increasing costs to claimants if they lose a case.