BIBA response to the Department for Work and Pensions consultation paper on supporting people who need to trace Employers’ Liability Insurance
6th May 2010
The British Insurance Brokers’ Association (BIBA) is the UK’s leading general insurance organisation representing the interests of insurance brokers, intermediaries and their customers.
BIBA membership includes 1700 regulated firms. Insurance brokers and intermediaries distribute nearly two-thirds of all UK general insurance. In 2007, insurance brokers and intermediaries generated £1.5 billion of invisible earnings and they introduce £22 billion of premium income into London’s insurance market each year.
BIBA is the voice of the industry, advising members, the regulators, the Government, consumer bodies and other stakeholders on key insurance issues. BIBA provides unique schemes and facilities, technical advice, guidance on regulation and business support and is helping to raise, and maintain, industry standards. BIBA works closely with the Chartered Insurance Institute to provide training to those working in the industry and actively participates in helping the industry and its customers deal with some of the major issues of the day.
BIBA members provide professional advice to businesses and consumers, playing a key role in identification, measurement, management, control and transfer of risk. They negotiate appropriate insurance protection tailored to individual needs and operate to a very high standard of customer service with the aim of ensuring peace of mind, security, financial protection and the professional advice required.
Please find below our response to the 21 questions:
Question 1: Is this the correct data to be recorded or is something else needed to properly identify EL policies?
Policy inception date
Policy end date
Firm Reference Number (FRN)
The employer information box states ‘postcode.’ The registered office of the company concerned must be the primary area for postcode capture. It may not be practical to record the addresses and postcodes of all locations if this is the intent. Also, not all employers will be limited liability companies.
BIBA believe suggested data should be sufficient provided that the information is properly and fully collected and recorded into the system and the records are searchable under all headings.
The information collected under the Employers’ Liability Code of Practice (ELCoP) should have meant that no claimant is uncompensated where the injury was caused post November 1999 because the insurer cannot be traced. Although the total number of post 1999 claims where the employer and insurer cannot be traced is extremely small (823 for non mesothelioma claims), reasons for the small number of failures compared with the total number of all claimants receiving compensation for injuries caused post 1999 must be identified to prevent any possible repeat of this problem with the new system.
It is probable that the failure of the ELCoP to identify 100% of referrals for post 1999 claims is due to a combination of:
– employers trading illegally without statutory insurance
– insurers not recording the information correctly
– insurers not demanding the requisite information from the broker and employer
– enquiries for employers who are not obliged to insure such as local authorities and Government departments
– duplication of enquiries which appear on consecutive months
– incorrect dates have been entered for a variety of reasons
The reasons why nearly 50% of pre 1999 referrals to the ELCoP failed to find the employer and the insurer will need to be formally identified and addressed. There are a number of insurance companies who have kept, maintained and updated their databases. A formal monitoring process must be set up for the new database and BIBA support an audit system to ensure that insurers, brokers and Insureds are supporting the database concept and providing correct information in the correct format.
It should be noted that the ELCoP was initiated to guarantee near 100% traceable insurance for new and emerging long tail diseases caused post 1999 with the full benefits of the database not becoming apparent for many decades. It was recognised at the time that the use of the ELCoP to trace insurers where the cause of the injury was pre 1999 would be limited.
A system needs to be set-up to note changes to subsidiaries and holding companies during the year of insurance. This could be submitted as they occur, or on perhaps a quarterly basis. The previous details need to be retained. Subsidiaries to be included for the purposes of the database need only to be those with employees based in the UK. Please note not all UK employers will be UK registered limited liability companies. This area requires further discussion and BIBA are keen to participate in any discussions in this respect.
BIBA would like to make the important point that it is the insurers that retain the information and not insurance intermediaries who are not party to the insurance contract.
Question 2: Is there a better unique employer identifier than the employers’ reference number provided by Her Majesty’s Revenue and Customs to facilitate tracing of EL insurance policies?
No, there is not a better way of doing it. The system needs to be able to accommodate subsidiary changes/ mergers/ acquisitions. The ELCoP/ ELTO Database system should be designed to retain these records. Will every employer with a ‘place of business’ including employers operating temporarily in the UK with employees from abroad for more than 14 days have an HMRC reference? If so, this information could work subject to the logistics of collecting and recording this information.
Question 3: Which historic records would it be feasible and proportionate for the insurance industry to include in any electronic database?
BIBA has not conducted a full cost benefit analysis to establish these facts accurately, although we believe the ABI has carried out some costings.
However, information on policies effective post inception of the new database should be recorded but the logistics of recording earlier policies may be too difficult. The existing system for tracing policies under the ELCoP should, perhaps, continue for the older claims if it is not feasible for earlier records to be recorded onto this proposed database.
We believe Insurers EL records from 1999 onwards should use best endeavors to include details of subsidiaries. Prior to this, Insurers that have added pre 99 data should benefit from a reward mechanism (see Question 4). It is important that there is a robust auditing process by the regulator to ensure the EL database is appropriately populated. The audit should be retrospective to 1999 and insurers information should be entered before historical records are destroyed.
Question 4: How should an electronic database be funded?
A charge for accessing the database may be more equitable than funding it via a levy on insurers and may discourage misuse. The cost can be recoverable by the claimant as part of a successful claim. The primary use of this database is to help claimants find their insurer and could be utilised as an insurance archaeology tool at a reasonable cost.
Ultimately though, any charge is unlikely to be sufficient to cover this and therefore we believe that a model similar to the Motor Insurers Bureau (MIB), with a levy on Insurers, is the correct course of action supported with fees paid by lawyers and others to access searches.
These will be a recoverable disbursement at the end of a successful claim.
The ELTO will likely become the first port of call and will help reduce legal fees where Lawyers incur major costs contacting various insurers.
BIBA also want to make the point that the insolvency profession should be consulted as to what steps they can take to retain this information and to ensure it is on the database and similarly with run off companies and schemes of arrangements which need to be factored in.
Question 5: Who should be represented on the board and what structure should such a board take?
The existing review body members would seem reasonable representatives for the new board and BIBA is willing to be a member of this proposed board. There must be a proper remit and constitution for the board. The key task will be to ensure that the management and operation of the new database will operate to maximum efficiency.
A board of 13 with 6 from the insurance arena, 6 from stakeholder and an independent Chairman to use their influence in times of conflict.
Question 6: Should the coverage of an ELIB be limited to where there is a legal requirement to insure, as is the case with the MIB, or should the ELIB provide universal coverage?
BIBA believe the ELIB should apply only where there is a legal obligation to insure (post 1972 in the UK and post 1975 in Northern Ireland) although BIBA would welcome further consultation to widen the compulsory insurance legislation. Areas to consider include widening the employee definition and also extending the territorial limits to include work undertaken overseas. There should be further consideration for claims where the alleged injury was caused prior to Employers’ Liability insurance becoming compulsory in Great Britain and also Northern Ireland. It would be reasonable for claims to be dealt with on the basis that compulsory insurance has always applied although care must be taken regarding any unintended consequences arising from dealing with claims on this basis.
Question 7: How should and ELIB be funded?
If a levy is to be charged, a practical way is a levy as a percentage of the EL premium of current authorised EL Insurers along with the fees generated from lawyers who access the database.
Question 8: What would be the impact on insurers and employers of establishing an ELIB?
The impact would be very little apart from the funding issue. The ELIB would not meet any claims where there was a solvent employer so they would not benefit. It would not meet claims where there was an identified insurer.
Where there were a number of defendants with some insured and some not with liability on a ‘joint and several’ basis will insurers be able to recover a percentage from the ELIB in respect of the uninsured proportion? Similarly where there is an insurer for part of the period and the insurer is unknown for the other part will the insurer be able to recover from the fund? This would improve the position for insurers but increase the cost to the fund.
Question 9: Should the level of general damages be based on amounts being awarded in the courts or on some different basis?
Claimants should be compensated in exactly the same way as if the claim was brought against the employer and the insurer. The fund must be used as a last resort only and claimants must demonstrate that they have exhausted all other avenues to trace the insurer on risk and the employer if they are still solvent.
Question 10: Should the level of compensation be decided based on an individual’s needs or on a fixed Tariff?
Due to the short timescales involved with life expectancy (14 months) for mesothelioma sufferers the system by Master Whittaker should be retained and developed to ensure speedy interim payments.
Question 11: Should Special Damages be incorporated within a fixed Tariff or should they be dealt with on an individual basis?
It is virtually impossible to argue for contributory negligence in asbestos claims, therefore it should be dealt with on an individual basis.
Question 12: Should an ELIB cover all claims, long-tail disease claims only or just those with mesothelioma?
If an ELIB is to be set up, it should not discriminate against uncompensated claimants suffering different injuries. All claims should be permissible.
Question 13: How could we ensure an ELIB paid out in all appropriate claims and not those that would otherwise not have been paid?
Normal rules as to proof of fault and duty of care on the part of the defendants and proof of causation and quantum.
Question 14: What level of evidence is needed to settle claims if contemporary records have been destroyed?
Employers’ Liability insurance is not a social benefit. Businesses and Insurers should not be penalised unfairly. The ELIB should operate as though they are an insurer of the employer and deal with claims strictly on a legal liability basis but, perhaps, on the basis that the policy did not contain certain conditions.
The courts should decide whether or not liability should apply as they do in cases currently where the insurer is known. This is not new and the courts are used to weighing the evidence brought by both sides.
An alternative method of funding ‘non fault’ cases must be considered, please see our answer to question 20.
Question 15: How should an ELIB start to meet claims to ensure fairness to claimants and funding at the start of any scheme?
The problem is that the ELIB needs to be capitalised on day one. There will be no funds but there will be many hopeful claimants as soon as it launches. There is also likely to be significant set up and admin cost. The ELIB should be allowed to make an additional call for funds on a regular basis e.g. quarterly basis.
However, once the Act has received Royal assent and brought into force, collection of the levy should start, therefore at time of commencement a fund would have been built up thus reducing the initial capitalisation required.
A suggestion might be that the Government put up the initial funds to get it started but we have to face the fact that insurers are the obvious source.
An actuarial study should be undertaken regarding the initial capitalisation of this fund to pay for claims against the ELIB under each of the three options regarding who is legible to seek compensation against the fund.
It must be recognised that the funding of this fund will not be an exact science. Unlike claims paid by the MIB, Employers’ Liability claims can be brought many decades after the exposure to the cause of the injury and this can make reserving for losses a very difficult estimate. The option to provide compensation for all claims regardless of timeframe is the fairest option but is likely to be by far the most expensive option and it must be recognised that there may initially be a large number of claimants seeking compensation. The number of claims should reduce after a few years although work will need to be undertaken to identify the possible numbers and costs.
Question 16: Should an ELIB meet claims to dependants after a person has died if a claim has not previously been compromised?
Yes – it would be inequitable otherwise.
Question 17: Should there be limitations on the time a person can take to bring a claim to the ELIB; if so, when should that time start and end?
Justice must be seen to happen. Genuine claimants should not have their claim prejudiced by a time bar limitation in circumstances where the claimant had no insurer or employer to claim against. The normal legal process must apply in respect of statutory time limitations. It must be recognised that if the time limitations are not to apply, there may be an initial large number of claimants who had previously unsuccessfully attempted to trace insurers. The cost of this should be ascertained as this will need to be built into the capitalisation of the fund.
Question 18: Would the introduction of an ELIB have an impact on employer ELCI compliance?
The problems encountered with the MIB and uninsured motorists must be avoided. The penalty for employers not having statutory insurance should be punitive and to the same level as the fines that can be imposed for successful prosecutions and high levels of fines imposed, this will have to be coupled with an effective detection system.
Question 19: What more can be done to ensure that employers which are legally obliged to obtain ELCI do so?
A system of checking should be in place, perhaps using the HMRC code used when filing monthly payroll accounts with the insurance policy number. A system of checking with the database similar to the MIB’s www.askmid.com could be introduced.
Ultimately making the Directors or Partners of the employer culpable would also drive the executive to ensure EL cover is obtained, although there is still the problem of identifying them. If the Bureau does not have an up to date record 30 days after lapsing then they should contact the insured to ask who the new insurer is.
Question 20: Is there anything else, not covered by these questions, which you would like to tell us?
The ELIB should only apply if they cannot trace the insurer, not the employer as this should have been established prior to a claim being brought (there may not have been an employer or they may have been self employed).
There needs to be a discussion over the effectiveness of using a fault based system going forwards.
Nearly all other countries including those in the EU use a workers compensation basis for compensating employees injured at work. Whilst not perfect it does largely eliminate legal costs if done correctly and ensures anyone injured in the course of working receives prompt and fair compensation. Depending on how the legislation is framed it is important to learn from others errors. It can also make risk management more effective as it takes away much of the adversarial nature of our present system.
Provided we learn from the mistakes of others it should be feasible without increasing overall costs disproportionately as it would reduce the need to pay state benefits to those who fail to get compensation at the moment. BIBA are not at this stage necessarily advocating a ‘non-fault’ system but it should be considered within the review suggested below.
We suggest a fundamental review. BIBA believes that now is an opportune time to consider revisions to the Employers Liability Act 1969 and subsequent regulations. This could be done in conjunction with the Employer’s Liability insurance bureau bill. BIBA also wants to see improvements to the Employer’s Liability tracing code. This will still have to operate effectively during this transition period.
The areas of concern are: the definition of employees, which does not appear to cover unpaid workers, such as volunteers and charity workers or work experience persons and others; the use by insurers of restricted trade descriptions, so employees working outside the description may not be covered; and workers temporarily working outside the UK.
There is also a potential problem with business descriptions in policies where there has been non-disclosure of a material fact. To obtain a lower premium an employer may omit some activities from his business description; he would be on the database as holding a policy but if a claim is made the insurer would be entitled to reject it. The insurer should be required to deal with the claim as ‘the insurer concerned’ similar to the MIB arrangement and then recover if he can from the insured and / or the executive and board of that company.
To ensure there is appropriate data when a company goes into runoff, Insolvency Practitioners should be expected to ensure that ELTO is up to date or provide a mechanism for the capture of the data held elsewhere. Insolvency Practitioners and run off insurers should have the original insurer records and should be subject to the tracing code requirements of the ELCoP .
While many policies will cover these, it is important they are made part of the statutory cover to ensure there is protection under the Financial Services Compensation Scheme (FSCS) should the insurer become insolvent.
Question 21: Do you have any further information, data or analysis that would be useful for improving the quality of the analysis in the Impact Assessment, in particular:
•The average cost of civil compensation (split by mesothelioma, long-tail diseases and other cases)
•The average legal costs of civil cases for insurers and claimants
•Forecasts of likely numbers of unsuccessful traces?
Thank you for taking the time to consider our response. If you have any further queries please contact Graeme Trudgill, BIBA’s Technical and Corporate Affairs Executive for further information on 0207 397 0218 or on [email protected] or Steve Foulsham, BIBA’s Technical Services Manager on 0207 397 0234 or [email protected] or Peter Staddon, Head of Technical Services on 0207 397 0204 or [email protected]
Direct Tel: 020 7397 0201
Direct Fax: 020 7626 9676
Email: [email protected]iba.org.uk