In the second of his articles on the reform of employers' liability insurance, John Wright looks at why the current systems of compensation are not effective.
The previous article on employers' liability insurance dealt with the causes of today's problems in the market, such as historic claims, the affect of stress-related illnesses and the possible implications from the TUPE Regulations.
The situation today is exercising the minds of insurers, and many are now treating the business as "accommodation" and they will only write it in conjunction with other classes of business.
The long-tail nature of the business itself is of some concern - the recent claims for hearing loss, asbestosis and others, have been paid for at today's values, in exchange for premiums which were a fraction of their required levels at the time of exposure.
While employers' liability insurers are looking at the UK position, there are considerable influences from overseas, where many countries adopt a no-fault compensation system for injuries at work. In the UK, there is a partial compensation system - the Industrial Injuries Scheme (IIS) - administered by the State, but the main remedy is by way of tort-based claims, backed by employers' liability insurance.
The signs are that despite the losses suffered by insurers, the current systems of compensation are not working effectively. Both IIS and employers' liability insurance have drawbacks, which can leave the injured employee inadequately compensated. Employers' liability insurers reduce damages for contributory negligence and the IIS clawback benefits from the tort based award. IIS benefits are not particularly good, and are not earnings related.
Insurers have looked at several areas, such as changing the trigger point in their policies to a claims made basis, and the change to a no-fault system, along the lines of those adopted in New Zealand and Sweden. There is also the question of whether such a scheme should be administered by the State or by commercial insurers. Insurers should be in a better position as they hold more meaningful statistics to base future contributions on.
There is no simple answer to the problems of the employers' liability market. Any alternative system will throw up conflicts somewhere, between the interests of commercial insurance market and the State. Arguably, the best compromise would be no-fault, exclusive remedy (employees' only source of compensation) for everyone injured at work, and administered by the commercial insurers. Other "no-fault" options could be considered, such as abolition of the tort-based remedy and expansion of the IIS, but there is always a problem:
- full compensation schemes would be too expensive
- imbalance between compensation for industrial injuries and other types of injury
- hybrid systems should not be an option because of the duplication of work and cost
- many workers' compensation schemes do not cater for non-economic losses.
Finally, there is the problem of disease claims. These have become a major problem for employers' liability insurers in recent years, not only because of "new" types of disease, but the bringing of historic claims, backed only by historic inadequate premium levels.
Insurers have been looking at claims made cover, but this may not work for disease claims as insurers could pull the plug on the cover at any time, leaving the employer without protection. At least on the present basis, the employer is covered for all historic exposures as long as the insurance was in place (and traceable) at the time of exposure. If a claims made basis were introduced, built in safeguards would be essential, such as extended reporting periods, run-off facility and guarantee funds. Accident claims are more straightforward, and a retention of the "cause" wording is more likely, leaving disease claims to the mercy of a claims made culture.
There are many other issues to resolve. Whatever the choice, reform in this area is long overdue.