Consultation on EL cover of last resort is a moral hazard

The Department for Work and Pensions is consulting on the need for an Employer’s Liability Insurance Bureau to trace EL policies and provide an industry-funded insurance of last resort.

The Association of British Insurers said it “opposed in principle” such a compensation fund of last resort because it would initiate “a serious moral hazard” that could prompt employers to take health and safety less seriously.

The move follows the second reading in Parliament of the Employers' Liability Insurance Bureau Bill to launch just such a body on Friday.

Untraced policies

The DWP said: “The argument for this is that the industry has, in most cases, taken the premiums for policies that are now not being traced,” it said. “The industry should therefore fund the full costs of an Elib, including the set up and running costs.”

Nick Starling, the ABI’s director of general insurance and health, said: “We recognise how important it is that anyone with an injury or disease claim caused through their work is able to trace their employer or its insurer to claim against. This is why we set up the ABI Tracing Code a decade ago.

“Over 98% of employers’ liability claimants are able to claim if they have suffered an injury or disease caused by their work, and insurers pay out £1.5 billion a year in compensation.

“But we want to do more to help the small number of claimants who cannot trace the relevant insurer. We are discussing with the Government whether an Employers’ Liability Tracing Office would achieve this.

Moral hazard

“However, we are opposed in principle to the proposed ELIB. It cannot be right that today’s law-abiding employers should have to pay for their potentially uninsured competitors or firms that now no longer exist, and who may not have had insurance.

“Such a fund could also encourage some employers not to bother with insurance, or to take the health and safety of their employees less seriously, knowing that a fund of last resort would pay out. In short, there is a serious moral hazard involved in this proposal.