Insurance Post

Insurers need to be careful in opposing the DWP's employers' liability reforms

The insurance industry has been placed in a difficult position with the publication of the Department of Work and Pensions' proposals for dealing with people suffering work-related diseases who cannot trace an employers' liability insurer. Despite the best efforts of the industry with its policy tracing service and code of practice (introduced in 1999), there is a stubborn 2% of EL claims where an insurer cannot be traced. This amounted to 3210 people in 2008, a not insignificant number especially when you take into account the immediate family members who share the burden of coping with the consequences of a debilitating condition. 
It has been clear for sometime that the government was going to bow to the growing pressure from its supporters - many of them with trade union backgrounds and first hand experience of helping and advising the victims of employer negligence - and introduce some scheme(s) that would impose a a greater burden on the insurance industry. It has left it very late in this Parliament to respond (so late in fact that the consultation on the DWP proposals closes on 5 May, the day before the favoured date for the General Election). This leaves the insurance industry with a tricky judgement to make as it responds to the aspects of the proposals that it doesn't like as it risks alot of criticism for not supporting measures that are aimed at helping people suffering great pain and considerable financial hardship. That could only be worth contemplating if it thinks it could win but, even then, I would challenge whether it would be the correct stance.
The Association of British Insurers has made it clear what it can live with in the DWP proposals and what it doesn't like. It seems pretty relaxed about the government taking over and beefing up the tracing service, although there will be some arguments about who pays for it, especially given the widespread inability of the public sector to run anything involving technology on a cost-effective budget. Where it draws the line is in setting up a fund of last resort - the Employers' Liability Insurance Bureau proposed by the DWP and supported by claimant solicitors and trade unions.
I think it is very hard to argue against the principle that a safety net needs to be put in place for people who cannot trace the relevant employer and associated insurance policies. For over 40 years we have had compulsory EL insurance in this country because we accept as a matter of good public policy that everyone should have access to such cover. Just as the Motor Insurers Bureau picks up the bill (and passes it on) where there is no motor insurer to pay third party claims it seems logical that the other major class of compulsory insurance should have similar provisions in place.
The ABI is right to be concerned about the potential moral hazard of rogue employers thinking that because a fund of last resort exists they need not fork out for EL cover and this point is not adequately addressed in the consultation paper. A look across at the experience in the motor market should start to provide some of the answers, however.
For many years the problem of uninsured driving grew and reached unsustainable levels. One of the reasons for this was that the penalties put in place when the MIB and its fund of last resort were set up were woefully inadequate. A decade long campaign by the MIB and the insurance industry has ensured that this has been addressed and now driving without insurance carries some serious penalties, not least the crushing of uninsured vehicles.
If the government wants to introduce a fund of last resort for EL claims then it must put in place some serious penalties for employers - and the directors of those firms - who do not take out cover. This should include imprisonment and fines for directors of current and long-defunct companies, as well as provisions to take action against professional advisers (auditors, brokers etc) who let their clients trade without paying for EL cover.
If we were in the mid-term of a secure Labour government this would be the best strategy for the industry because it would have to accept that a bureau would be set up. However, we are potentially on the cusp of a change of government which makes the decisions on how to respond rather more difficult. I still think the industry should offer support in principle for the fund of last resort as it is the decent, humane response to this problem. It should, however, press for some proper definitions of scope (it certainly should not stray beyond supporting those who would have been covered if the statutory cover had been in place) and some draconian penalties for those who run and advise businesses who do not think that protecting their staff is a priority. This would put the ball in the court of the incoming government, a much better place for it to be.

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