Tim Humphreys Association of British Insurers

Tim HumphreysAssociation of British Insurers Workplace Compensation in the UK

ABI Liability Committee • Began review 2 years ago • Looked at UK workplace compensation system from viewpoints of all stakeholders • 2 components to the system:EL insurance and Industrial Injuries Benefit • There is little linkage between these 2 components

Employers’ Liability Insurance • Entirely within the commercial insurance system • Compensation is funded through insurance premiums • Claimant must prove negligence • Compensation is relatively generous • Insurance is compulsory • Premium income over £1bn

Industrial Injuries Benefit • State benefit funded by tax • No fault-but 14% disability • Covers accidents and prescribed diseases • Legacy of welfare state • Compensation is very limited • Benefits can be recovered by CRU • Costs £700m per year

Workplace Compensation in other Countries • ABI Liability Committee looked at workplace compensation arrangement around the world, but in particular: • Germany • Holland • Belgium • Summaries of these systems included in ABI response to DWP

Workplace Compensation in Germany • Developed by Bismark • No fault • Prevention,rehabilitation and compensation under one roof • Industry sector mutual providers • Rehabilitation is compulsory • Compensation only after rehabilitation and in the form of benefits or a pension • Employers are exempt from liability • Coherent system but very expensive (8-10bn Euros)

Workplace Compensation in Belgium • No fault • State covers diseases,private sector covers accidents • Employers can only be liable for gross negligence • Insurance Association still sets tariffs for insurers • Rehabilitation is not well developed • Accident /disease split seems to work but the Belgium system seems very bureaucratic

Workplace Compensation in Holland • Disability Benefits payable for work and non work accidents • State pays benefits but top up income protection insurance is common • 1m people are on this benefit(over 10% of the working population) • Employers can still be liable for work injuries so EL is common but not compulsory • EL is claims made and excludes some diseases • Cost of the system to the economy is driving reform-particularly rehabilitation

Fault v No Fault • UK has both fault based and no fault compensation systems • ABI commissioned research into the impact of a switch to no fault • 3 options were considered: • Frugal (no award for pain and suffering,limited awards and scope) • Unconstrained (includes pain and suffering ,wide scope,disputes settled by litigation) • Mid way (limited pain and suffering)

Research Findings • Insurance cost of current arrangements:£1.27bn • Frugal system:£1.43bn • Unconstrained:£4.75bn • Mid way:£3.01bn • Why? Because claims rates are between 3 and 6 times higher in other countries.Litigation is also common in no fault systems • But-return to work schemes can help reduce costs even with a fault based system

Strains on the UK System • For Employers: • Rising premiums • Availability of cover? • Late renewal notices • Insurers don’t differentiate risks? • Lack of communication

Strains in the System • For insurers: • Underwriting losses • Rising claims costs • Falling investment returns • Unpredictable legal environment • Occupational diseases impossible to price?

Result of Strains • Business groups lobby MPs and Government about rising premiums • ABI lobbies Government about the operating environment • DWP and OFT look into liability market • Window of opportunity for reform and change-won’t happen again for a long time

OFT and DWP reports • Measured reports-no market failure,no collusion (following extensive input from ABI and insurers) • DWP agenda: • Enforcement of ELCI • Rehabilitation • Legal costs • Risk related premiums • Separating the funding of occupational diseases

Enforcement of ELCI • AXA survey 13% of businesses are not insured! • DWP and HSE are undertaking their own research to find out extent of this problem • DWP are considering whether a database of ELCI policyholders is needed to ensure compliance • Much will depend on the extent of the problem

Rehabilitation • Government committed to rehabilitation playing a more central role in the UK-but how? • Data on the costs and benefits of rehabilitation for the Government,employers and insurers and the economy is needed • ABI has commissioned some research on this • Need to define what is meant by rehabilitation and where resources can best be deployed • DWP stakeholder meeting likely to be held next month

Legal Costs • 40% of EL claims cost are legal costs • Government looking at alternative dispute resolution and fixed fees • Impact of pre action protocols • Any more radical suggestions?

Risk Related Premiums • ABI has been working with trade associations to identify best practice for health and safety • A panel of insurers will assess trade associations against best practice criteria and give feedback to the association • The ABI assessment will then be circulated to all insurers • Trade associations and their brokers will be able to use the assessment when placing cover • Information should allow insurers to differentiate risks • DWP and HSE support the scheme

Separation of long tail disease claims • ABI and insurers must make the case to DWP for separate funding of long tail disease claims • ABI has commissioned PwC to examine the economic case for separation and the best model for funding these claims • PwC will look at how the market would have performed without occupational disease claims and how it might cope with another asbestos • The impact of occupational disease on the future cost of capital • How the market would operate if occupational disease was removed from the equation

The Way Forward • DWP has set its agenda and ABI is happy with it • The 5 DWP work streams mark the boundaries for debate over the next 6 months • DWP will make a progress report in the Autumn-this will not be a final report-but will report developments like: • Service standards for renewals,trade association initiative,PwC research • Momentum has been built for change • Another opportunity to influence change like the one we have now will not come along for many years

Tim Humphreys Association of British Insurers