Almost a quarter (24 percent) of small and medium-sized businesses (SMEs) have had an employee or former employee claim against their Employers’ Liability Insurance in the past five years.
The majority of employers (84 percent) believe that the UK has a compensation culture, with over three quarters (77 percent) viewing Claims Management Companies (CMCs) as the principal contributors to this growing trend. Fears over fraudulent Employers’ Liability claims persist and reforms are strongly supported by SMEs – 79 percent of SME owners would like to see tougher medical examinations imposed for workplace related accident or injury claims in order to crack down on fraudulent activity. AXA UK has launched a report that reveals the scale and impact of workplace injury compensation claims on the UK’s SMEs, finding that 24 percent of SME owners interviewed have had an employee or former employee make a claim against their Employers’ Liability Insurance in the last five years. Furthermore, the potential for fraudulent claims activity, including cases where the nature of the injury could be exaggerated in order to increase the value of compensation, is a significant concern for SMEs. The majority of employers (84 percent) believe that the UK has a compensation culture in this area.
SMEs support a raft of proposed reforms designed to counter fraudulent workplace claims, which are having a knock-on effect on premiums. Fifty percent of respondents said they have experienced an increase in premiums over the last five years. Industry data shows that the number of firms experiencing a claim has risen sharply during this period, which has, in part, driven this rise in premiums. This is despite the fact that the number of reported workplace injuries and accidents has fallen. Eighty four percent support a new requirement on claimants to go through alternative dispute resolution before pursuing a legal claim and 79 percent support making medical examination standards tougher, which reflects the concerns, linked to whiplash claims, already being explored under the Ministry of Justice’s proposals on independent medical panels. There is broad support too for the legislative changes already carried out by the Government. Seventy one percent of businesses asked support the ban of so-called 'no win, no fee' offers, while 78 percent support the ban on referral fees for claims management companies. These are viewed by SME employers as the main contributors to the compensation culture – 64 percent think that CMCs are completely or largely responsible for the growth of Employers’ Liability claims and a rising compensation culture and 80 percent say that CMCs’ marketing activities should be curtailed by limiting or controlling the volume of cold calling, an idea first mooted by Lord Young in 2010.
David Williams, Managing Director, Underwriting at AXA said:“There is no doubt and no question that those who are genuinely injured in the workplace should receive fair compensation. However, at a time when the number of workplace accidents is falling and the number of claims continues to rise, there is clearly something of an imbalance in the system. “It is clear from this research that workplace injuries remain a major issue for SMEs – the lifeblood of the British economy. The cost of fraudulent workplace claims is bringing about the inevitable consequence of higher Employers’ Liability premiums. Small business owners have serious concerns and would like to see the Government go even further with its reforms. There is a case to be made for introducing more vigorous medical examination standards around workplace injury claims in order to combat the growing compensation culture along with an overhaul of the dispute resolution track. In any case, our research shows that as the prevalence of claims increases, it poses a higher risk to the stability of SMEs and companies need to make sure that they are adequately protected against them.
“One thing we are calling for is the insurance industry to draft a code of conduct on best practice for health and safety for businesses and the voluntary sector. This should include separate guidance focusing on risks specific to small and medium-sized businesses and would go a long way to helping businesses ensure that they are fully informed on the risks to staff and the ways to mitigate them.” Insurers can support employers by helping to identify and manage risks before a claim is made, which builds on the already positive relationship most SMEs have with their insurers. Nearly three-quarters (74 percent) thought that their insurer had been somewhat or very helpful when dealing with a claim and as a result 85 percent stayed with their insurers after making a claim.
Commenting on the report, Professor Christopher Parsons, Cass Business School, observes: “The AXA research suggests that there is a perception among employers of the existence of a compensation culture. It seems clear that the upward trend in Employers’ Liability premiums is likely to continue given the reductions over the years in Industrial Injuries Scheme benefits, which have increased the incentives to make Employers’ Liability claims against employers. “Considering the increasing size of injury awards, which have consistently outstripped both earnings and general inflation, further rises in Employers’ Liability premiums seem likely even if accident rates continue to fall, as Employers’ Liability claims are more attractive to injured workers and are easier to make.”
In its report, AXA is calling for the following: Tougher sanctions regime for non-compliance including a doubling of fines to £1 million, and the power to shut down CMCs who flout privacy laws. Introduce more effective regulation to restrict the marketing activities of referral agencies, such as claims management companies, and personal injury lawyers, in particular to control the volume of cold-call marketing practices.Create a more robust approach to medical assessments for workplace injuries by extending the use of independent medical panels to cover all personal injury claims, not simply whiplash-related personal injury claims as currently envisaged under Ministry of Justice proposals.
Simplify risk assessment procedures for low hazard workplaces such as offices, classrooms and shops. Low risk workplaces such as these could make use of simple, online risk planning tools and guidance, such as the online guide provided by the Health and Safety executive (http://www.hse.gov.uk/getting-started/index.htm).
Examine the role of health and safety risk consultants. This research shows that they are a first port of call for many businesses, but a number of these consultants do not have any professional qualifications and may employ the goal of eliminating all risk from the workplace rather than setting a proportionate approach to dealing with the Health and Safety at Work Act and other legal requirements. The Health and Safety Executive’s online directory should help to promote better qualified health and safety advice, but the potential for bad advice will remain given its voluntary nature. Promote the role of insurers. The Young Review highlighted that insurance companies sometimes insist on costly and unnecessary health and safety risk assessments before they will offer insurance. While the requirement for unnecessary risk assessments is nowhere near as widespread as originally feared, insurers do employ risk management specialists and are able to advise on risk improvement which can influence future premium levels if the result is an improved claims experience.
Building on the existing guidance note for health and safety for SME firms, the insurance industry could consider developing a more detailed code of conduct on best practice for health and safety for businesses and the voluntary sector. Better reporting of industrial diseases and injuries, including more centralised management of the data. There are numerous agencies involved in this process and they do not collect data in the same way which makes it difficult to get a clear picture of workplace trends. Clearer disclosure rules covering the identification of companies that are contacting consumers and the means by which they received the contact details. Consumers should also be given details on their right of redress and how to complain.