It seems certain that the government's 'claw-back' scheme for reclaiming the cost of NHS treatment from insurers will be extended to cover all forms of bodily injury in a year's time. Insurers appear to have accepted the inevitable, but, as Stephanie Denton explains, would like a greater say in how the money is spent
The National Health Service in England is in the red to the tune of £250m despite record increases in government spending revealed last month. It is therefore no surprise that the government is keen to introduce a scheme that means the NHS can recover costs for personal injury cases from insurers.
The Department of Health had initially intended clawing back costs of injury treatment from insurers on 1 April this year, but announced in March that it would postpone the implementation of the plan until October 2006. Following the announcement of the NHS deficit - some hospitals have overspent by £30m - this looks set to go ahead, giving insurers a year to prepare for the initiative.
"The background to this is that there is already a system in place for the NHS to recover road traffic accident costs, and from a policy point of view it is a natural progression to move this on to other claims with liability," explains Craig Templeton, head of non-motor claims at Norwich Union.
The proposal is to extend the scheme to cover all personal injury cases, which would therefore affect employers' liability, public liability and products claims.
"As far as the government is concerned, the NHS is having to pay; and when there is a guilty compensator in the background it is saying 'Why can't the money be paid back?'," Mr Templeton adds.
Although the proposals are yet to be confirmed, there is much speculation about what will be included. Claire Mulligan, partner in the personal injury team at Plexus Law, says: "I would not be surprised if they introduce fixed costs in the same way as they have for road traffic accidents." As of April 2005, these were £483 for outpatient treatment and £593 for inpatient care per day, up to a cap of £35,000.
Mr Templeton agrees and adds: "This is trying to perform uniformity and consistency across claims. From an administrative perspective this is a simple way to enforce the proposal, as it acts as a predictable cost."
According to Ms Mulligan this could be positive for insurers as it will help them to ease into the system and predict future claims costs. "It is clear that the insurance industry does not welcome the introduction of such measures at short notice, especially when high disease costs are affecting the market and when higher employers' liability costs would not be appreciated," she explains. "Therefore, if for the first year they started with fixed fees, as opposed to saying they want to claim back everything now, this would help insurers. This is already done for RTAs so it makes sense to proceed in this way first. Predictive costs for legal fees would also be positive."
Another plus point for insurers is that they have a clear year to prepare for the change. David Williams, claims director at Axa Insurance, says: "Insurers have known about the cost of NHS re-charges for a while. We have been able to calculate what it will add to our costs and plan rating accordingly; the delay in introduction simply gives us a chance to phase it in more easily, hopefully having less impact on the customers, who will have planned their businesses taking into account only 'normal' increases, not including anything exceptional like this."
However, the general market consensus is that this initiative will increase pressure on premiums and have a negative impact on the customer. "Costs have not come down on the EL side yet. When this comes in, insurers will have to adjust reserves upwards and this will be passed down to the insured," says Ms Mulligan.
Mr Templeton agrees and adds that this is likely to have a negative impact on the market: "If this goes ahead, then extra administration and NHS costs will add to the claims costs and this will have to be passed onto the customer via premiums. Things are slightly more stable now, by which I mean the significant premium hikes we saw a few years ago are not at the same level as before. There is no more consistency, but the market is softer now. Something like this will not help."
According to Nick Patterson, managing director of injury management and rehabilitation company Corpore, premiums could increase significantly. "Underwriters I have spoken to see an 8% increase in EL and public liability premiums, but premiums are dropping at the moment in the soft market," he explains.
Increases are certainly expected by the Association of British Insurers, but it believes the impact could have been much worse if the scheme had been implemented this year. Spokesman Malcolm Tarling says: "We hope any impact has been minimised and that it will have less of an impact than it would have a year ago, when there was great pressure on the market. Premium increases currently stand at around 7%, compared with 30% to 40% two years ago."
Mr Patterson supports this and says the government is unlikely to change its mind this time. "I think this time the government will follow through, although the ABI might put forward the case that this will push EL into crisis. This could be the case, as the EL market has got premiums falling and costs rising," he explains.
Insurers, however, seem to have accepted that the initiative is going to be introduced and most are not campaigning for a further reprieve. Instead, thoughts have moved to what insurers can get in return.
"There was a consultation document last year, but in my view the principle was established by the RTA procedures, so it is difficult to defend," explains Mr Templeton.
Therefore, according to Mr Williams, if the NHS is getting 'extra' funding, insurers should be able to influence what it does with this. "I would like to see a change in priorities, much more a focus on getting injured people back to work," he says. "If insurers and therefore insurance premiums are providing additional funds, it is not unreasonable for some of this money to be spent providing better rehabilitation within the NHS. Should the money not be used to help control premiums and produce a service that is good for the employer?"
Mr Williams also believes that the capping of prices would only be a short-term solution, but says if insurers could get better rehabilitation treatment for claimants, it would be worth trading the cap to help control premiums and produce a positive service for employers.
Mr Templeton agrees: "We feel that it is fine to repay costs but if we were doing this in our own system we would expect to have some degree of influence. With the NHS, we have no control on the outcomes of treatment. We are concerned that, rather than costs specifically going back into better treatments and things like rehabilitation that encourage people back to work, the money will go into the general administration fund to run hospitals, or focus on other areas that are not relevant."
He explains that compensators would like to ensure that all costs are for treatments incurred and not for extras such as cancelled operations or delays.
Private sector benefits
According to Owen Gorman, director of Sigma Claims Solutions, this may see insurers turning more to private providers: "This could be good news for rehab providers because insurers will look at cost benefits and are likely to see that with private providers, rather than the NHS, they will have more control over the treatment and can ensure that the focus is return to work."
Mr Patterson agrees: "For injuries like back pain, strains, sprains and whiplash, the NHS does a great job, but with a network insurers can control costs and get service level agreements. With the NHS there are delays, as it has its own pace - and this can mean more treatment is needed in some cases.
"If insurers have control, they can intervene early and bring costs down. If insurers have got networks to utilise, then they can ensure there are no delays to treatment and that the work being done will return the person to working functionality. Insurers need to have an outcome through medical treatment and rehabilitation that gets people back to work."
However, insurers deny that there will be a wholesale rush to private providers. Mr Williams says: "We do not want to take people out of the NHS system if they are already in it, as the cost of the NHS is substantially less than private treatment. However, the NHS is not always as prompt as we would like it to be, and we can use the private option to cut the queues down."
There are other options available to insurers, says Mr Gorman. "This is most likely to affect the middle-level claims and we may see innovation being introduced here. Insurers may try to convince employers that they need to have onsite first aid services such as a proper company nurse. This will mean that minor injuries can be assessed onsite," he explains. "Private medical insurance for employers may also start to appeal and if companies have a policy, for example with Bupa, they may receive discounts or an incentive to join a scheme like this."
With a year still to go and no firm plans in sight as to how the proposals might work, insurers are not yet ready to tell their customers of the impending premium rises.
"We have not thought of doing anything to let our customers know yet, but now that it seems to be inevitable we will start to tell our customers about all the things happening in the market," says Mr Williams.
And the ABI is not pushing its members to tell the public. Mr Tarling confirms: "These issues are frequently being discussed with our members, but we feel it is up to insurers to decide when and what to tell their customers as that is a commercial decision."
According to Mr Gorman, it is also a little too early to start factoring claw-back into underwriting, as this may affect competition. He says: "Insurers could prudently build this into underwriting from now on in. There is, however, a difficulty in factoring it in if competitors are not doing this. The industry needs to get together and set a level."
So what can insurers do to prepare for the initiative? Very little, according to Mr Templeton.
"Where there is a lack of clarity we need guidelines, and all we can do is wait to see the final version," he says, "but our reaction in the end will be devising processes to comply with the government's requirements."
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