Case for US-style workers' compensation unproven, broker says

The case for the introduction of a US-style workers compensation system to deal with the UK employers' liability (EL) crisis has "yet to be proven", according to broker Marsh.

In its response to the government's call for consultation on EL, Marsh claims it cannot accurately quantify how a no-fault system would reduce legal costs.

Marsh UK retail placement head Mike Jones said: "Legal costs in regard to EL currently account for 40% of all claims costs. We can't quantify the costs accurately because we do not know what proportion of claims are defended."

He said a no-fault system may also provide "less incentive to employers to manage risk".

Marsh UK arranges EL cover for 6,000 clients and places £250m of premiums. As an example of how desperate the situation has become, Marsh said a manufacturing client saw its premium increase from £700,000 to £2m.

Marsh proposes the adoption of a reinsurance vehicle it dubs the "EL compulsory insurance Pool Re" (ELCIPool Re) to reinsure disease risks previously insured by ELCI direct writers.

The key elements would be:

  • All disease risks as defined would be ceded by authorised ELCI commercial insurers. Like Pool Re, it would be a private rather than public entity

  • ELCI Pool Re would underwrite current and future risks. But it might also be possible to cover legacy risks through portfolio transfer arrangements, like Lloyd's Equitas

  • Rates would be determined actuarially and be set each year

  • A central claims handling body would be established to invite lawyers/claims handlers to tender for business.

    If an employer becomes insolvent, as in the Turner & Newall case, where Royal & SunAlliance was accused in the High Court of "wriggling out of its liabilities" to pay asbestosis sufferers of an insolvent company, Marsh recommends a `cut-through' facility. This allows claimants to deal directly with the pool.

    The report said: "Where practicable an employer should purchase run-off cover in appropriate circumstances."

    Jones said: "Financial failure of a participating insurer should not prevent valid claims being met by the rest of the pool, although it is possible the pool might need the government acting as insurer of last resort."

    Marsh is sending its recommendations to its clients in the coming weeks.

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