Far Eough?

Two cheers for the government. The long-awaited consultations on reform of the liability market were published last week and showed some appetite for reform, which is just what the industry needs. But it stopped short of doing anything radical. Or, to put it another way, it stopped short of changing anything enough to initiate the quantum shift that is needed.

Airmic chairman David Ireland says: "Until we get action with tangible results, things will go on staggering along in the currently unacceptable fashion."

The Department of Work and Pensions (DWP) report came in at a hefty 80 pages, while the Office of Fair Trading (OFT) report was a brief 22 pages. The OFT scraped the surface of the issue, concluding that there was availability of cover in all but two areas: professional indemnity for independent financial advisers and for asbestos-related risks.

Minimum times
The other main point was the recommendation of a minimum 21-day renewal notice period. This could well prove sticky. As long as information is provided to insurers early enough, this should be possible. And insurers recognise that minimum standard times can be worked on, but are obviously worried that brokers will shop around, which is exactly what the OFT wants.

A meeting between the ABI and Biba will be held on 20 June to talk through the issue. Insiders say the likely outcome will be the agreement of some basic principles. Insurers are already saying that there will be no short-term agreement on numbers.

It wasn't just insurers' service standards that came under fire from the OFT. It also accused insurers of ignoring their actuaries.

"Explanations given by insurers for recent increases in premiums have not been as detailed or as rigorous as we would have expected. This may be a reflection of the limited role of actuaries in underwriting decisions," it says.

The rest of the OFT document reinforces the points made in the more exhaustive DWP document. The fundamental idea proposed by the DWP is that efforts should be focused on prevention of accidents and disease in the first instance. The next most important factor is rehabilitation. And firmly in third place is compensation.

Self-assessment
Sensible stuff, but woolly in detail. On prevention, the DWP says that trade associations are making health and safety assessments of their members, thus forcing directors and managers to think more about accident prevention.

Insurers and brokers are also working on self-assessment packages for businesses, so that they can measure their performance against benchmarks and, where appropriate, raise their performance. And once these improvements have been made, insurers are promising to reward health and safety performance on a company-by-company basis, rather than a sector-by-sector basis.

It is happening. Haywards Heath broker Warren Hill has been collaborating on a web-enabled self-assessment package for the Federation of Small Businesses (FSB). And builders that sign up to the government's Quality Mark are also being rewarded with premium discounts. These are isolated initiatives.

A centralised way of formatting these programmes, so they can be rolled out in other sectors, would be a benefit to the industry as a whole.

The DWP report made more noise about health and safety enforcement. It has promised to develop an active system of identification based on annual notifications of policies, which can be cross-checked against an enforcement database. Employers' liability (EL) dodgers will be a thing of the past: that's the promise. "The government will take action to reform the enforcement arrangements for EL," says the DWP.

Rehabilitation was given a massive boost by the DWP. "A culture change is needed to place rehabilitation at the heart of the EL system, so the real gains of a return to health and alleviation of suffering come before the second best of financial compensation," the reports says.

Great, but how? That's where the thinking looks least developed. The DWP says it will review the cost incentives on business and insurers in relation to the provision of rehabilitation and other occupational health services. But there are already plans to increase the burden on insurers for rehabilitation undertaken within the NHS.

Motor injuries
While this already happens for motor injuries, the plan is to extend this to workplace injuries and the NHS reckons that over £120m will be recovered from insurers per year, putting an extra 6% on employers' liability policies, according to the Department of Health.

Aon Corporate client service managing director Deborah Durkin says: "We are disappointed that rehabilitation is seen as a longer term issue."

It is good that more rehabilitation will take place, but insurers would like to control the spending and measure the effectiveness themselves. Otherwise where is the incentive?

The DWP report recognises that rehabilitation must be implemented as early as possible following injury. It also realises that this is difficult under current rules of engagement, where provision of rehabilitation can be seen as an admission of liability.

It's idea for getting around this is to have an independent, objective assessment of the medical condition at an early stage and an evaluation on the appropriateness of rehabilitation and the prognosis of potential benefit.

This, of course, would add a cost into the system. But, asks the DWP, could this be paid for by private medical insurance or within a company's own occupational health scheme? While this is possible, the problem is that most UK businesses are too small to have their own occupational health schemes or company nurses, and that private medical insurance covers very few people.

Separating long-tail diseases from accident injuries into some kind of pool was high on the agenda of some insurers. But the DWP is not convinced of the arguments.

Evidence of impact
"It is difficult to find evidence of long-tail risks having a quantifiable impact on the current employers' liability market," says the report. The DWP warns that a much more compelling argument must be put together before it consider separating out long-tail risks.

"In line with the principle of polluter pays, the government would be very reluctant to transfer these costs from businesses to the taxpayer [through a levy-based, government-run pool]," says the report.