Markets may be softening but if your customer is in the wrong trade, affordable employers' liability is still hard to find One option to bring cost down to affordable levels is for clients to accept deductibles and rely on their broker to come up with a way of mitigating the cost of low-value claims. Insurance Times' panel of experts discuss the opportunity.
Andy Cook: Creating an employers' liability (EL) deductible was seen as something for big clients working with the multi-national brokers, but the EL crisis has changed all that. Many brokers fail to understand that they too can use expertise to tailor EL policies that allow low-value claims to be managed by the broker and client. Perhaps, Peter, you could explain.
Peter Staddon: Just to put the discussion in context, under the 1969 Act you can't have a deductible on an EL policy unless it comes in from a different direction. In other words, if the claimant has a claim then the insurance company has to pay direct 100%. He could have a deal with the employer to say: "Fine I've paid X amount of pounds, give me back something."
Now of course the problem with that is, where is your letter of credit?
I know a few insurance companies are doing that and I think that's typical of the market in which we work; it's innovation. It looks at a problem and tries to find a solution, and I have no real problems with that.
Martin Wright: Is this really for the smaller company? I mean it's fine for a large company to take a deductible on EL because they have the financial resources to cope with that. But how is a small family business going to be able to do it?
PS: I think this kind of proposal is becoming essential if your client wants to trade but can't afford to buy EL. Two months ago, I heard about a company that had a turnover of £20,000 and the EL cover was £25,000.
That's just quite outrageous, but he is in a high-risk business.
Jonathan Clark: The other issue is, what is going to be a viable deductible to make a difference in the premium? I mean a £100 or £500 deductible isn't going to have much of an effect. But talk about a deductible of £10,000? Actually £5,000 - £10,000 feels about right for EL. When we're working with people like JLT to construct claims handling programmes, I look at a lot of corporations' EL programmes, and what's always very interesting is you've got to work out where you cut particular management techniques.
In the low-value claims it's all about making your mind up fast, getting in quickly and having well-rehearsed routines, such as disclosure documents. If it takes you five weeks to find out somebody's income, that's five weeks you're not settling the claim.
Charles Swann: Doesn't the level depend, however, on the claims experience of the individual business? If you have lots of small attritional losses then, if it takes out the bulk of the claims at that level, you set it at £250.
MW: There are two elements about controlling these low-value claims.
I look at it from a pre-incident and post-incident perspective, so when we're looking at it from a broking perspective there's a lot about the risk management work. A lot of the work comes before the incident takes place to reduce the likelihood of an incident taking place. So health and safety policies, among others, are involved in managing the risk.
You then need to look at it post-incident. One of the ways we could tackle this is rehabilitation to get rid of a claim before it becomes a litigated incident, rather than something that quite often can be dealt with fairly shortly after the event - provided there's a proper way of dealing with the claim when it happens. You can also introduce fixed legal fees and things like that - but the claim has gone too far at that stage; you want to get rid of it before it even gets to that stage.
Hugh Price: I think you're absolutely right, the issue is the prevention of claims in the first place, but if the accident has happened, then equipping the employer and/or the insurer with a means to defend the claim. Often what we find is that companies are ill-equipped to defend claims because they're either not fully compliant with health and safety legislation, or they are carrying out certain aspects of it but not documenting it properly.
One thing that we've seen working well is a medico-legal interview with the claimant as soon as possible after the event to try to assess whether it's a valid claim in the first place. You sit down for half an hour and talk with the claimant about what happened. You assess whether it's a valid or invalid claim. If it is a valid claim you then sit down and agree a course of action. It could be something like a minor trauma injury, which just demands a bit of physiotherapy. You can agree with them that there will be five sessions of physiotherapy to put it right. So by doing this you get rid of the invalid claims and concentrate on the genuine claims, but you deal with them by treating the problem rather than paying compensation.
Tim Ablett: I think early intervention is absolutely crucial, because it's way out of control that the legal aspect has taken over from the medical aspect. I would go further than just agreeing at the outset that the claimant requires a course of five physiotherapy treatments, to use your example, because it may not need five physio sessions. To manage the recovery of that person and get them back to work at the earliest possible time, which is surely the objective, it may only need three physio sessions and something else. That then minimises the liability claim.
One of the main concerns for the employee is, are they going to get an income while they're off? That's often why they want compensation if they're off work. The other issue is whether the employer has a means of paying their income while they're being treated. There are all sorts of ways to give them an income, whether it's private medical insurance to allow them to get treated free of charge, or permanent health insurance.
Managing these low-value claims doesn't start with the claim, it starts much earlier in the process. There's a huge role for the broker there in terms of health and safety advice, in terms of good old risk management, the sort of thing that we all learned when we were first entered the industry, which now seems to have gone by the board.
We now try to manage risk by claims management, and it should be risk prevention that we manage. But you've also got to have in place good claims management, with early intervention, with good old-fashioned case management of that risk. Whether it's the legal side or whether it's the medical side and, again, we've tended to shift out into call centres and to managing a claim rather than properly case managing the individual.
JC: That kind of early risk management is difficult for companies to deal with because when you look at things like the six pack (of health and safety regulations), there is an assumption that it's things that are being done to you, rather than realising there is a mutual benefit in executing your health and safety policy well.
If you look at it from a claims perspective, the biggest nightmare you have is that when an incident happens the health and safety policies aren't clear.
Another interesting point about managing low-value claims is that in about a third of the claims we deal with, we can't get the earnings data easily.
Now in any health claim you must anticipate there will be loss of earnings and so, number one, it would be nice to get the data and, number two, I think it helps our underwriters look at what are we actually trying to manage. If you can get somebody back in seven weeks rather than 14, the mutual benefits are significant.
MW: I suppose the difficulty is the culture that has been developed by claims management companies, by solicitors advertising, that whenever someone has any sort of incident or accident, their first reaction is that they want to claim.
TA: Part of that is driven by the fact that there is no early intervention or management.
CS: And the other crucial thing is, of course, to equip the employer with the tools to adequately defend the claim. A lot of companies are not in that position at the moment.
HP: As a lawyer, the biggest problem I find is implementation. It's all very well having a safety policy that's written, but if it's not properly published or enforced by senior management, you've got a problem. It's terribly easy to say: "We've got the most wonderful health and safety policy in the world," but if nobody's actually making sure that people wear hard hats or ear protectors and so on, it's going to fail.
PS: You're right about the culture, but isn't that part of the role for brokers, in terms of advising that company.
A lot of the issues that I'm seeing are coming from the judiciary. When was the last time you saw a claim go forward and you thought, hang on, where is the contributory negligence issue? I can't remember the last time that I saw a contributory negligence implication. Unfortunately there seems to be a lot of very spurious claims coming forward and we need to look at that.
JC: I don't think contributory negligence is a winner. I think tactically, when you're defending claims, you have to look much more closely at causation, not liability. The judiciary are definitely providing answers on contributory negligence, but only where causation is very clear. I think what happened was, there was a period when we became very obsessed, from a defendant's side, with arguing liability issues rather than causation. I appreciate it's a very semantic point, and it comes back to the point that Martin was saying, it's not about the policy of the health and safety but about the health and safety regime.
HP: Contributory negligence issues are constantly being argued and often pleaded. Having sat as a deputy judge myself a number of years ago, I know that it is sometimes very difficult when you have the parties in front of you, to come to a decision as to whether or not the claimant himself was contributorially negligent, particularly if somebody has been very seriously injured. I think it's very difficult for employers to prove contributory negligence against their employee, simply because there may be lack of training or a lack of understanding. So all these things are taken into account by the court, and to say that the courts don't take them into account is wrong.
Paul Crowther: I think we need to make sure that - nobody around here I'm sure - nobody within the industry wants to see somebody not get proper compensation. I think it's not so much about saying, okay you're 20% contributory, so we're going to take 20% away.
What we need to do is use it as a tool, we need to look at it a little bit more laterally and say, well if you cause something it's going to affect you directly, and obviously the poor old employer is invariably sitting there, and he's the one getting it in the neck from everybody's lawyers, his own insurance, obviously the claimants, and the plaintiff's lawyers.
MW: A lot of the issues you can tackle under the insurance area are the legal costs, so if you can take the legal costs out of the equation, then the claims experience will probably be much more attractive from the underwriter's perspective.
JC: But a lot of that depends on the relationship between the claimant and the employer. Because if the claimant and employer have got the right relationship, then he'll be happy talking to an accident claim handler. With the employees' representatives, trade unions and things like that in the equation, they're the ones who've got the expert lawyers who will litigate and who are experts at getting big settlements, so you need to keep them in the process as well.
PC: You're maybe being a little disingenuous to claimants' lawyers, if I may say so, and unions as well, because I think if you actually talk to them, what most of them want is the best outcome for the person they're representing. They appreciate that its not just money in the back pocket, they do appreciate that you want to get them back to work.
I haven't been in this industry very long, about seven years, but in that period, when I first started talking to claimant lawyers it was a case of: "We don't care about rehabilitation, we just want money for our claimant, and that's what our claimant wants." If you talk to most of them now, and certainly most of the major firms, I'd say they're much more amenable to the idea of total claimant care.
TA: The TUC is very pro rehab.
PS: The Health and Safety Executive (HSE) is working on rehab, certainly in Northern Ireland I know, and also over here. One of the problems with the HSE is everybody's got this fear factor: "If I phone the HSE and say 'Can you give me a little chat and have a talk about this?'", they think they're going to come in and close them down.
Well that's not what they're doing. In Northern Ireland what they are doing is running a pilot programme and they have set up a helpline. You phone them up and a guy will come in to give you advice; he won't use any information and he won't pass it on to anybody else. He'll simply tell you what's going wrong and help you along that line, because they are focusing in on the fact that they are not there to prosecute, but to help.
JC: DTI research shows time and again that for every pound spent on an EL claim, there's between £8 and £32 that's not correctly allocated.
I'm really stunned more people don't do more near-miss analysis. In Europe we've now got companies who incident-log and use web-based systems to do it. Charles, do you find people have an appetite for that, because it's a good way to help and also having your risk assessments done?
CS: Well that is a legal obligation of course but a lot of so-called health and safety specialists within companies are not really equipped to undertake those properly.
TA: People are very good at looking at their property risks. They're very good these days at looking at IT risk. The one risk that they really don't perceive as a risk is the employee. As businesses, they have to start focusing on employee risk management, and that means from cradle to grave.
Look at the pension problem that we've got today. That's because we weren't managing that employee risk. We don't properly screen people when we first employ them. We've been doling out private medical insurance as an employee benefit, but what has it actually done to the employee risk profile of an organisation? To be perfectly honest, nothing. So we've got to get away from that way of thinking and start to manage the employee risk from the moment he joins the organisation, through his sickness and absence. We've got one of the worst records in Europe on sickness and absence. We waste direct costs - £13bn a year in absence through sickness.
We've got one of the worst records in Europe, and indeed the world, of returning people to work when they've been off sick for more than six months. It's appalling; you've got twice the chance of getting back to work if you're in the US, four times the chance of getting back into the workplace if you are in Scandinavia. And why is that? It's because in those countries they are properly case managed and that risk is properly identified and managed.
All of that has an effect on an employer's liability insurance, it has an effect on income protection insurance, it has effect on pension funds, it's a huge cost that's embedded into organisations in the UK, making us less productive and less competitive.
Now we will move to a managed care situation, because of the way the government is moving and the way the burden is shifting rapidly to the employer - and the employer is not waking up to this. So unless he starts to manage these things, the cost is going to increase. The government's already thinking about whether sickness absence statistics should be in plc reports and accounts. If you have people identifying and measuring it properly, they will see the true cost of it. There have also been Treasury discussions as to whether, from a taxation perspective, companies should be rewarded or penalised if their sickness absence goes over a certain level.
Communication is also vital. It's also about keeping the claimant informed of what's happening. We find what happens is that a claim goes in but they don't know what's happening because there's no feedback as to what the process is, then they get agitated. Quite often it just goes quiet until you go to court.
JC: You've raised quite an interesting point here, as to whether lawyers should be involved at the outset. I think it's something Paul might have touched on earlier. You're absolutely right in the way your company is handling it by getting in early, talking to the claimant, managing the claim in terms of rehab and getting the claimant back to work.
But let's assume for the purpose of this that we have got a relatively benign claimant, the problem is who are you acting for? Are you acting for the employer or for the employee? Because the claimant may say: "Hang on a minute, I might have done better if I'd gone to see a solicitor." That's where the whole thing starts to unravel.
PC: You can do what you like to mitigate the costs early doors but if you don't manage it properly, that's where a claimant's solicitor will come in and cause trouble. There is a non-adversarial way forward. For traffic accidents there's the deal with RBS Insurance in terms of what price people pay and we're in a scheme with Norwich Union as well, and a scheme potentially soon with Zurich across all three divisions. Mobile Doctors gives a fixed-price report and then they agree to pay our fees.
HP: This is on the basis, presumably, that liability is accepted.
PC: No, in the RBS scheme liability doesn't have to be accepted, it's just a way for the insurers to keep the cost down. Intervention as soon as an incident has happened is essential for looking after the potential claimant and making sure that claimant becomes a productive member of the organisation again as quickly as possible. But I think we've also got to be cognisant of the fact that inevitably some of these claimants will be going forward and making a claim for damages. I think that the brokers have a real opportunity to work with SMEs in particular, in the deductible level and in managing the cost of the whole claim by making agreements with solicitors over fees, agreeing medical fees and managing the cost of those claims. Brokers have a real opportunity to help manage the process.
AC: What we've talked about today is good practice. There is a real opportunity here for brokers to educate their clients in this whole process.
Charles Swann, Head of risk management, Jardine Lloyd Thompson
Tim Ablett, Chief executive, FirstAssist
Hugh Price, Partner, Hugh James Solicitors
Martin Wright, Managing director, Towry Law insurance broking division
Paul Crowther, Marketing director, Mobile Doctors
Jonathan Clark, Senior vice president, Crawford & Co
Peter Staddon, Technical services manager, Biba
Andy Cook, Editor, Insurance Times (chair).