Employers’ liability: A fund of last resort
The need for a fund of last resort for employers’ liability claims still divides the insurance community. While plans to create an Employers’ Liability Insurance Bureau have stalled, it still has supporters who are determined to see these proposals come to fruition.
Government proposals to help injured or ill employees who are finding it difficult to trace their employers' insurance records have been on the table for some time.
Plans to create an Employers' Liability Tracing Office proved popular with insurers and are progressing well, but attempts to create a ‘fund of last resort' in the form of an Employers' Liability Insurance Bureau appear to have stalled.
The Department for Work and Pensions published a consultation paper, entitled Accessing Compensation - Supporting People who need to Trace Employers' Liability Insurance, in February 2010. The theory was that a better tracing service, with a dedicated database, would help people track down policies, while a fund of last resort would be available if all else fails. However, two years have now passed, a new government is in place, and an ELIB has not come to fruition. But, while it has stalled, it has not been forgotten.
A DWP spokesman says: "The issues raised by the consultation into the ELIB are complex and we are in active discussions with stakeholders to make sure we get this right. We are carefully considering all the issues and will bring forward proposals in due course."
Despite the challenges, there are arguments in favour of an ELIB, with a parallel drawn with the Motor Insurers' Bureau. Cenric Clement-Evans, senior solicitor with New Law, says: "An ELIB should aim to replicate for workplace injuries, the model provided by the MIB for motor injuries. Claimants would still need to prove their case."
He asks: "In a modern civilised society why should someone injured at work be in a worse position than someone injured in a road traffic accident? Is there any reason why it shouldn't be a success?"
However, there are significant differences between the nature of EL and motor claims. Steve
Browne, head of casualty at Axa Commercial Lines, explains: "EL claims are generally complex and can involve multiple insurers providing cover over a period of time. Such claims are quite different to the type funded by the MIB."
Alan Hunter, head of technical claims for Zurich, adds: "It is a very different dynamic to that of the MIB - in the sense that there will always be people who take a risk and drive uninsured or who won't stop after an accident. But I'm not sure you can transfer those sorts of behaviours into the employment arena."
Indeed, not all stakeholders are convinced of the need for an ELIB. Hunter continues: "It feels to us a very disproportionate solution."
Insurers who already invest significant resources in keeping careful records, and pay significant proportions of the claims that are traced, may be concerned at the prospect of an additional contribution to a fund of last resort. Once a claim is successfully traced, if it involves several insurers but only one can be found, a single insurer may have to pick up the entire bill. If that insurer is also being asked to contribute to an ELIB costs can rise exponentially.
Costs and funding are inevitably a cause for concern. It is yet to be decided where the money for an ELIB would come from but it seems likely that insurers will shoulder the cost. A levy on those who insure employers - in the same way the MIB is funded by motor insurers - is one potential solution. However, the complexities of funding should not be underestimated. As Hunter observes: "The industry can't just absorb the cost of an ELIB and that leads to tricky questions about who would pay the levy. Is it everyone in the market? And what about insolvent run-off companies? Even determining market share is more complicated than most commentators speculate. There are some awkward questions."
Browne says: "While it would not only be insurers that would fund an ELIB, historic EL risks are also picked up by government in respect of nationalised industries and the Financial Services Compensation Scheme, the costs of such a scheme are likely to be paid by current insurers and, therefore, by definition, current employers."
Question of funding
The question of funding inevitably raises the spectre of increased costs to businesses. Gill Manley, management consultant at CSC Financial Services, agrees with Browne. She adds: "If insurers are called upon to fund an ELIB, questions regarding commerciality will come into play and any recoupment of levies paid will need to be balanced against an insurer's market competitiveness.
"Having said that, there is a significant probability that premiums will rise. The question is, will businesses that are required to have EL coverage be able to bear the potential rise in costs, especially given the current economic climate? What's more, will they want to?"
Funding is further complicated by the fact that, as EL insurance was not compulsory before the Employers' Liability Act 1969 came into force, there may be cases where a policy hadn't been in place. "This potentially means a fund paying out when no EL premium was collected by the market," Browne adds.
If an ELIB is introduced, it will, be of some significance in the case of long-tail claims, particularly asbestos-related conditions.
Emma Costin, head of industrial disease at Simpson Millar, explains: "If an ELIB is established, it should prioritise those who are most seriously injured and their families. Victims of mesothelioma stand out because the disease is so aggressive and distressing for those involved. Mesothelioma claims are by nature long-tail. However, there are other equally deserving claimants where the negligent act complained about could not be described as long-tail."
Recent developments in legislation on the asbestos-related disease of pleural plaques may also have an impact on a potential ELIB. Pleural plaques is now compensatable in both Scotland and Northern Ireland, and those who were unable to seek compensation in the past may now need to look for the relevant employers and their insurers.
Karl Tonks, Association of Personal Injury Lawyers vice president and head of employers' liability at Fentons Solicitors, says this may not be an area where tracing is a particular problem. He explains: "Fortunately, in relation to both Northern Ireland and Scotland, the tracing issues are not as great as in England and Wales because of the industrial history and heritage of those places. Many claims arise from shipyard work, where the insurers are almost entirely known."
Still on track
In stark contrast to the ELIB project, the ELTO is still very much on track and is widely supported by the insurance industry. In fact, much investment has already been made in ELTO. As Adrian Brown, provisional chair of ELTO and UK chief executive of RSA, explains: "Insurers have provided the funding for the build and running costs of ELTO and, along with the broker community, have made significant changes to their working practices and software to enable EL data to be collected and supplied in a considered and uniform way."
Brown adds: "ELTO's early results are strong, as both the number of searches and number of successful searches has increased on those of the tracing service previously in place. The database now holds almost 4.5 million policy records with more being added each day - when EL policies are written, renewed or claimed against and once policies have been identified through historic searches. In time, it will become a comprehensive repository of EL policy records as even more policies are identified and added."
If ELTO continues to flourish, would it feasibly negate the need for an ELIB entirely? It is, of course, important to recognise the limitations as well as the potential of ELTO. Tonks observes that while there will now be an Employers' Liability database of current and future insurance, "what the ELTO does not address is the problem of tracing insurance from the past".
He adds: "It feels most acute when you are dealing with, for example, victims of mesothelioma who were exposed 20, 30 or even 40 years ago. In some of those cases, the insurance records are incomplete and an ELIB would address that."
No longer available
Browne responds: "The industry cannot undo the fact that certain historic insurance records are no longer available. The industry argues that it simply could not foresee the extent of historic claims that are now being made.
"The number of claimants that are unable to trace a valid policy are small when compared to the amount of valid claims met by the industry every week and every year."
"ELTO will impose tracing standards on its members, which should hopefully improve the capabilities of insurers to match valid records, and ELTO is already working hard on ensuring that the data that confirms the number of successful traces is fully accurate."
There is much consensus around the benefits that ELTO can deliver. The concept of an ELIB has yet to inspire enthusiasm amongst insurers.
However, some believe that an ELIB and an ELTO would complement and strengthen each other. Costin concludes: "The existence of ELIB is likely to make ELTO more efficient. There will be a huge incentive on the industry to make sure the insurers at risk stand up and be counted in order to minimise the drain on the resources of an ELIB."
Employers' Liability Tracing Office and Employers' Liability Insurance Bureau timeline
March 2009: Andrew Dismore MP publishes a private member's bill, calling for the creation of an Employers' Liability Insurance Bureau
July 2009: Justice Secretary Jack Straw pledges government support for an ELIB
October 2009: Hopes for an ELIB are dashed after Andrew Dismore's private members' bill fails to get second reading
December 2009: The Association of British Insurers rejects calls for an ELIB to compensate injured or ill workers
February 2010: Government launches Accessing Compensation - Supporting People who need to Trace Employers' Liability Insurance pledging to establish an Employers' Liability Tracing Office and an ELIB
The Trades Union Congress backs ELIB proposals, claiming it will stop companies "weaselling" out of their responsibility for injured workers
April 2010:
David Neave, director of general insurance at Co-operative Financial Services, calls on the insurance industry to fund an ELIB
The ABI announces plans to work with the Motor Insurers' Bureau to create an ELTO
June 2010:
Leeds West MP Rachel Reeves vows to campaign for an ELIB before the next general election
February 2011:
ELTO urges insurers to sign up to the body in the face of Financial Services Authority regulation requiring publication of EL policy data
More than 90% of the EL market signs up for membership of ELTO
April 2011:
ELTO begins accepting data from insurer members for upload to the Employers' Liability Database
May 2011:
The DWP claims plans to establish an ELIB have not been shelved
Employers' Liability Tracing Office plans for 2012
Adrian Brown, provisional chair of the Employers' Liability Tracing O_ ce and UK chief executive of RSA, looks at the work ahead for 2012
• Extending ELTO board appointments to ensure wider stakeholders - especially from the claimant community - are represented
• Establishing the employer reference number as an effective tool in assisting claimant enquiries
• Ensuring that intermediaries and those operating delegated schemes comply with data capture requirements
• Working with the Financial Services Authority to ensure the few insurers that have not yet joined ELTO, estimated to cover 1% of the current market, are properly complying
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