Whitehall is awash with legislation that will change the way insurance operates forever. From the Corporate Manslaughter Act to the Legal Services Bill, there’s a maze of laws, proposals and guidelines that every insurer and broker needs to know about. Here, Michael Faulkner provides a survival guide
Corporate Manslaughter Act
The Corporate Manslaughter Act comes into force in April. The legislation will hold executives responsible when corporate negligence results in death at work.
It leaves companies facing a criminal conviction and unlimited fines following fatal accidents, if there has been gross failure by senior managers.
It is estimated that the new Act could potentially cost UK plc £21.2m in legal bills. Research suggests 50% of employers are not ready for the introduction of the new law.
The law means companies must review their risk management procedures and insurance covers to ensure the new exposures are adequately protected against.
Callum Taylor, management liability underwriting manager at Hiscox, says: “Companies could face prosecution for breach of duty in areas they have not previously considered.
“As well as having to cope with expensive legal bills, companies facing legal action under the new Act risk their reputation being damaged, and the day-to-day running of their business being disrupted.”
Taylor says brokers need to check the wordings of their clients’ liability policies to ensure they are properly covered. “They need to look carefully at employers’ liability, public liability and management liability covers.”
The Home Office has predicted an increase in the number of corporate manslaughter prosecutions from one case a year to between 10 and 13 when the bill finally becomes law.
Personal injury claims reform
These reforms have been hailed as a once in a lifetime opportunity on the claims process landscape.
But despite much heated debate and a government consultation last year, the future of the reforms remains unclear.
There is speculation that, under pressure from the unions, the government may water down or even quietly shelve the reforms – although most think the latter would be politically embarrassing. The Ministry of Justice (MoJ) says it is still considering the responses to the consultation.
The key points of the proposals published last year by the MoJ (then the Department for Constitutional Affairs) are:
• Leave the small claims limit at £1,000
•Introduce fixed legal costs to all personal injury claims
•Shorten the timeframe for insurers admitting liability (from three months to 30 days for public liability and employers’ liability cases and 15 days for motor cases).
The proposals have been broadly welcomed by the insurance industry, although there are concerns among insurers that the short timeframe for admitting liability will be difficult to meet and could lead to frauds being undetected.
Legal expenses insurers are also concerned that the proposals could damage the after-the-event (ATE) insurance market, as ATE policies would not be needed for many claims.
“Companies could face prosecution for breach of duty in areas they have not previously considered
Callum Taylor, Hiscox
Legal Services Bill
The bill sets out the government’s legislative proposals to reform the way legal services are regulated and delivered. The proposals, enabling legal services to be provided under new business models, present opportunities for the insurance industry.
The new law, which followed a review by Sir David Clementi in 2004, will allow
law firms to form partnerships and companies with non-law firms such as insurers.
Numerous companies within the insurance industry, including loss-adjusters and brokers, have expressed interest in acquiring law firms.
Legal expenses insurer DAS has already claimed it will buy independent Bristol law firm CW Law. But experts predict there will not immediately be a flood of acquisitions given the costs and risks involved.
The bill received the Royal Assent last year, although the new business structures will not be possible until 2011.
Damages consultation
Last year the government published a consultation paper proposing changes to parts of the civil law on damages. The proposals include changes to the Fatal Accidents Act 1976 to extend the categories of people who would be eligible to claim damages for bereavement.
It also looked at the principles surrounding the ability of people to claim damages for the cost of private medical treatment and the law on claims for psychiatric illness.
Another area considered in the paper is the law on aggravated and restitutionary damages.
The proposals could lead to insurers paying out more for personal injury claims.
Periodical payments
A recent Court of Appeal decision could open the floodgates for claimants seeking periodical payment orders (PPOs).
PPOs provide claimants with regular payments rather than the traditional lump sum awards.
They are a potentially problematic for insurers given the uncertainty around the total amount that will be paid out, which makes claims reserving difficult. There is also a limited market for annuities that insurers can buy to fund the periodical payment.
Until recently, PPOs have not caused too much of a problem for the insurance industry as very few were requested by claimant lawyers. Instead, the threat of a PPO was used as leverage in negotiations over a lump sum award.
But last month’s Court of Appeal ruling in Thompstone is predicted to change this. The decision makes PPOs more attractive to claimants to link the PPO to wage inflation rather than retail prices, the former having increased at a greater rate than the latter.
It is not clear whether an appeal will be made to the House of Lords.
