Transcript Tim Humphreys,ABI - Insurance Market Conferences

Tim Humphreys
Association of British Insurers
Workplace Compensation in the UK
ABI Liability Committee
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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
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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
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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
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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
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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
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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
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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
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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
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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
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For Employers:
Rising premiums
Availability of cover?
Late renewal notices
Insurers don’t differentiate risks?
Lack of communication
Strains in the System
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For insurers:
Underwriting losses
Rising claims costs
Falling investment returns
Unpredictable legal environment
Occupational diseases impossible to price?
Result of Strains
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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
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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
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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
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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
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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
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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
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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
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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