One of the few areas of consensus among insurers trying to solve the EL crisis is the industrial diseases pool. David Williams explains why he backs it
The current level of rating increases that insurers are seeking in some classes of insurance would suggest to many that there is an element of greed involved. So, when this is coupled into the employers' liability (EL) crisis could this be the moment many brokers have been waiting for - an insurer suggesting that it has now reached the stage where our EL increases are not completely justified?
Sadly, that is not the case. I believe, as do most other insurers, that we still have a long way to go on EL before we see it as a class of business where we stand a chance of making some money.
What I am saying is: we have a golden opportunity at the moment to achieve change. But is this opportunity in danger of being ruined, partly by a lack of unity, but also by us presenting too great a wish list?
Hedging my bets here I have to say I see this more as an item for debate than a statement of fact. However, it is something we need to take seriously as an industry, particularly as we wait for the official outputs from investigations by the Department of Work and Pensions and by the Office of Fair Trading, which were due out this week.
My interest, perhaps, stems from the length of my own wish list.The huge number of improvements I would like to see can take up a fair amount of time to simply run through, without giving each the real consideration it deserves.
This approach has been the correct one until now. The insurers' response had to match the OFT's review, which was always going to be in some depth. However, having convinced even the most ardent 'insurer hating' members of the public that the current EL system is not sustainable, should we now focus on fewer key aspects for change?
The advantage of this is that, hopefully in one area at least, we have unanimity. Everyone seems to accept that we need a separate solution for industrial diseases claims. That would be my 'choice' if given the option to get just one major change through.
The reputation of the insurance industry has suffered some major knocks, due to our inability, perhaps, to handle claims from people with severe respiratory afflictions. We must admit to at least an inability to handle them to the degree expected by the media, even if the problems are not always of our own making.
The only remaining areas of debate on an industrial diseases pool are which diseases would go in, and how would it be funded.
Looking at the former, if we argue that the long-tail nature of industrial diseases claims is what makes them unsuitable for conventional insurance, then let's use that as an example of what goes into the pool.
We should not restrict the list of prescribed illnesses but, as a guide , any condition that takes more than ten years to reveal its nature should go into a separate industrial diseases pool. I would prefer a five-year rule, but maybe ten is a better start.
Initially, we don't need to worry too much about funding. We as an industry could go ahead and set up a claims handling pool because, for the next ten years, at least, the funds would come from existing sources, such as insurers, the Financial Services Compensation Scheme and government.
Our industry's reputation would be greatly enhanced if, say, someone with mesothelioma when making a claim realised that they needed to direct their claim to just one central body.
The pool scheme would also introduce efficiencies which might actually save insurers money and, best of all, the injured party might get compensation while they are still alive. Harsh as that might sound, sadly all too often litigation delays payment until after the death of the victim.
Once the funding of future claims was sorted out other we could tackle the problem of EL premiums.
We have the ability to offer better discounts on EL premiums to reflect good health and safety management. We all seem to accept that we don't do this as much as we should. Although we have tripled the number of health and safety surveyors we employ in an attempt to do this, what proportion of the premium can you actually discount?
With the EL of the future reduced to accident-only coverage, the discounts allowed can be much greater. This is because the large proportion of premium set aside to pay for those unknown industrial diseases of the future would not be needed. According to the ABI, industrial diseases accounted for 51% of total EL claims in 2001.
With a greater degree of certainty in an EL system without long tail diseases, and a better potential for accurate actuarial modelling, new capacity should start coming into the market. This is long overdue.
The other area where there is consensus is that everyone believes we have a huge problem with the greatly increased litigious nature post the Access to Justice Act.
But, while everyone sees we have a problem, there is tremendous disagreement about a solution. AXA has suggested a move to no-fault, workmen's compensation-style cover, but more work is needed on the details of the real cost of such a move. Others are firmly against it. After all, do we really think that a house containing such a high proportion of people with 'legal connections' would allow us to cut them completely out of the process?
What about the man in the street's right to his day in court?
The government is unlikely to support no-fault, but I also feel all the noise we have made about the problem, and the willingness of some to accept greater responsibility for injuries in the workplace, will have stood us in good stead.
There is more than one way to restrain the "out-of-control" legal manoeuvrings of claims farmers, ATE legal expenses and contingent fees. The courts seem to be finally providing more sensible guidelines which should make the future more certain, and should control the percentage of money going to solicitors.
This, of course, is the money which should be going on compensation to injured parties.
The latest judgment in The Accident Group test cases, which ruled on the legality of ATE fees, is very much a step in the right direction. Fixed fees on small claims would make a world of difference. Let's hope we see those in wide use in the very near future.
So we should be using more conventional instruments to solve some of our other EL problems, but push for the industrial diseases pool now. We could, possibly, even set up the claims handling framework on a voluntary market basis ahead of any change in the regulations which actually control EL insurance.
That's my choice, if I'm only allowed one.
Note: This was written ahead of the government's announcement about EL on 4 June