Too much too late?
Written by Peter Davy
Peter Davy investigates the industry’s reaction to proposals for the Employers’ Liability Insurance Bureau
Given that more Labour MPs lost their seat in the recent election than at any time since 1931, not to mention the drama that followed, you could be forgiven for not following developments in Hendon too closely. Nevertheless, Labour MP Andrew Dismore’s loss there by just 106 votes to the Conservatives in May could prove significant for employers’ liability insurers and, in fact, employers everywhere.
It was Dismore who, as a vice-chair of the All Party Parliamentary Group on Occupational Safety and Health, helped draft a report last year calling for a fund of last resort for employee liability claims where the original insurer cannot be traced. He also sponsored two private members’ bills that helped put the issue on the previous government’s agenda, such that a consultation by the Department for Work and Pensions on introducing a fund ended on May 5, just a day before the election.
The issue, say supporters, is a simple one: while employers’ liability insurance has been compulsory since 1972, victims of certain conditions with long latency periods, principally the asbestos-related disease mesothelioma, can be left high and dry if the company responsible no longer exists and the insurer can’t be traced. Just as victims of uninsured motorists are covered by the Motor Insurers’ Bureau (MIB), funded by a levy on all motor policies, we need an Employers’ Liability Insurance Bureau (ELIB).
“There is a comprehensive scheme in place for those injured on the roads but at work there is a gap,” explains Muiris Lyons, president of the Association of Personal Injury Lawyers, which has campaigned for a fund to cover EL claimants for over ten years. “We see it as the missing link.”
Others, though, hope it’s the proposals that will go missing and follow Dismore out of Parliament. Among the opponents is the Association of British Insurers. Its objections are threefold. First, it frets that it could mean more employers go uninsured. At present, employers’ liability has over 99 per cent take up, and insurers don’t want anything to threaten that.
“As soon as you develop a fund of last resort it could remove the incentive for some employers to take out insurance in the first place,” warns Malcolm Tarling at the ABI.
Second, opponents argue that the move is largely unnecessary, particularly in light of increased efforts to help claimants trace policies. The ABI has run a voluntary scheme since 1999, and although the success rate has been patchy, it’s recently improved, so that it traces policies in 45 per cent of cases.
This should improve further from July when it is replaced by a new body, the Employers Liability Tracing Office (ELTO), a key plank in the DWP’s proposals, starts work. Funded by £2 million from a levy on EL insurers it will be run by a subsidiary of the MIB.
In any case, though, only four per cent of claimants need to use the tracing scheme. Given that the insurer is identified in about half of those, claims can already be brought in 98 per cent of cases, the ABI points out.
At Allianz Global Corporate and Specialty in London, meanwhile, regional liability manager, Will Morris, argues that the comparison with the MIB breaks down when you look at the number of cases that actually cause a problem, which is relatively small. “The proposals seem to be using a sledgehammer to crack a nut,” he says.
Finally, though, opponents argue the proposals are unfair. “The people who will end up paying for this are going to be the law-abiding employers who do actually take out EL insurance,” warns Tarling.
AN UNCERTAIN FUTURE
It has to be said, some of these arguments are probably stronger than others. Lyons, for instance, is particularly unimpressed by the claim that a fund would mean fewer employers take EL cover.
“It’s still against the law not to have a policy,” he points out. “I can’t see a normal law-abiding business suddenly deciding not to take out cover just because there is this fund of last resort for asbestos victims exposed 20 years ago.”
On the other hand, at Hogan Lovells, partner Peter Taylor says APIL’s argument that insurers should pay up because they took the premiums originally is little stronger. The insurer responsible might well have been liquidated long since, he remarks.
“It is not today’s employers who failed to get insurance and it is not today’s employers liability insurers who are failing to step up to the plate,” he says. It’s not hard to see ABI’s argument when it asks why today’s insurers and employers should pay. The only problem with that, he says, is that someone has to.
“Of course it is not fair but that is not really the point. It is a means of distributing a cost that needs to be borne by society.” Given that the MIB has already shown a relatively effective way of doing this, the proposals for ELIB make sense.
The only important questions then, are how much it would cost, and whether it’s likely to happen. Unfortunately, for now at least, neither is clear.
There are, says Andrew Morgan at Field Fisher Waterhouse, about 2,000 deaths a year from mesothelioma and perhaps 10 per cent that currently go without compensation, while the claims on average cost £200,000 to £250,000. When you add that up, it’s not an insignificant amount, he admits, but set against insurers’ total business it should be manageable, and for their customers should they pass it on, which seems likely. “It’s a very small part of a big cake,” he says.
The DWP points out that in 2008 there were already 3,210 people who remained uncompensated, and the nervousness from insurers is perhaps explained by recent figures from The Actuarial Profession’s UK Asbestos Working Party. In January it doubled its estimate of the expected cost to the UK insurance industry of asbestos-related diseases between 2009 and 2050 to £11 billion, 90 per cent of which is expected to come from mesothelioma claims.
In any case, says Andrew Parker, a partner at solicitors Beachcroft, the proposal comes at the wrong time both for insurers and the employers.
“The insurance market in contrast to the banking sector has held itself together through this financial crisis, but it is really not a good time to try and test how resilient it is,” he warns.
Whether we are likely to see such a test is another question. Parker argues the ELIB is by no means inevitable. Much of the support came from Labour MPs, who are now on the back benches of opposition or out of Parliament altogether, he points out. At APIL, though, Lyons says he’s hopeful. Part of the DWP proposals are already being put into place with ELTO, and he says there is cross party support for the fund as well. “It’s not a controversial issue politically, so I’m reasonably optimistic.”
Back in Hendon, Dismore has other things on his mind. He has said he is considering a challenge to the election result, following claims that some were prevented from voting. At the moment, then, it’s unclear whether we’ll be seeing him in Parliament again. With or without him, though, insurers and employers probably haven’t heard the last of this issue.