1 June 2013 MARSH INSIGHTS: OUTLOOK: PERSPECTIVES ON TOPICAL RISK AND INSURANCE ISSUES FOR UK CORPORATES Over recent months we have profiled several developments in relation to insurance claims specifically the Ministry of Justice claims reforms and the growing number of industrial disease claims. The claims environment continues to evolve and in this lead article we report on several further areas where you may need to take action. Marsh s dedicated claims team will be pleased to discuss and assist you with any aspect of claims management. 1. INCREASING COSTS OF WHIPLASH AND OTHER PERSONAL INJURY CLAIMS ARE ADVERSELY IMPACTING MOTOR PREMIUMS. The Association of British Insurers (ABI) reports that whiplash claims add an extra 90 to the average annual motor premium per vehicle. These and other types of personal injury claims now make up the largest proportion of motor insurance claim costs: 20% of insurance premium is spent on whiplash claims. 15% is spent on other personal injury claims under 500,000. 9% is spent on other personal injury claims over 500,000. The ABI states that eight in ten personal injury claims following road traffic accidents are now for alleged whiplash, over twice the average of France, Spain, and the Netherlands. Claims costs have a direct impact on the level of insurance premium paid, so it is critical to act promptly to enable insurers to identify and repudiate fraudulent third party claims and to ensure genuine claims are managed in a way that contains legal and medical costs. In this edition More developments with claims: - Motor personal injury. - Industrial deafness. - Removal of strict liability. - Mesothelioma. Dispute resolution. In brief: - Liability insurance limits. - Travel insurance. Marsh worked with a client to put in place improvements in reporting, monitoring, and management of motor fleet claims. This enabled insurers to manage the claims process proactively, especially in respect of third party costs. The financial impact has been considerable, with paid and outstanding claims down from 1.4 million to 575,000 over two years a reduction of 59 percent and a significant saving for the client in both insurance premium and hidden costs.
2 MORE DEVELOPMENTS WITH CLAIMS (CONTINUED) 2. SIGNIFICANT RISE IN INDUSTRIAL DEAFNESS CLAIMS Marsh, together with the rest of the insurance industry, has witnessed a significant rise in Occupational Noise Induced Hearing Loss (industrial deafness) claims. RSA Insurance Company (RSA) reports it has seen an increase of over 50% in the past two years. There is also a change in the types of industries receiving claims. Traditionally claims arose from heavy manufacturing environments, but we are now seeing claims from lower risk trades and sectors. Marsh handles all disease claims in-house, so we retain oversight of insurer actions and can help clients to draw together the necessary documentation and evidence to enable decisions on liability to be made and costs to be mitigated. Marsh also has a specialist insurance archaeology team, Insolutions, which can help clients trace evidence of historic insurers. A large percentage of the monies paid out on deafness claims is in respect of third party solicitor costs. The RSA, for example, reports this to be over 60% of the total payout for deafness claims. As reported in previous editions of Outlook, the Ministry of Justice claims reforms have banned the recovery of success fees for personal injury claims received from 1 April 2013 and a fixed costs regime will be introduced for disease claims managed in the portal system from 31 July This should reduce the level of third party costs associated with industrial deafness claims. To enable insurers to make effective decisions on liability for industrial deafness claims and to repudiate those thought to be spurious, it is important to provide evidence such as noise surveys, risk assessments, noise training, hearing tests, and hearing protection provided. Claims can date back to employment periods several decades ago, so businesses at risk of such claims need to collate a full record of all previous employers liability (EL) insurers if they are to avoid having to pay such claims themselves. 2 Outlook - June 2013
3 MORE DEVELOPMENTS WITH CLAIMS (CONTINUED) 3. PROPOSAL TO REMOVE STRICT (NO FAULT) LIABILITY The Enterprise and Regulatory Reform Bill, which is currently going through parliament, contains a clause which will, if enacted, remove the concept of strict liability. This could have an impact on some employers liability claims as it will prevent a claimant being able to cite breach of a statutory duty to achieve a successful personal injury claim. They will need, instead, to be able to prove negligence on the part of the employer. The most significant area this could impact is personal injury resulting from defective work equipment, where the current statutory duty to maintain equipment in good repair means claimants can invoke strict liability without the need to prove negligence. (Reference: Regulation 4 of the Provision and Use of Work Equipment Regulations 1998). Abolition of this statutory duty/strict liability will allow the employer to prove they took reasonably practicable measures and therefore were not at fault. 4. MESOTHELIOMA COMPENSATION SCHEME ANNOUNCED A Mesothelioma Bill, announced on 8 May 2013, includes the scheme to compensate newly diagnosed mesothelioma sufferers who have developed the condition as a result of negligent exposure at work, but who cannot trace a liable employer or EL insurer. The scheme will be funded by a levy on current EL insurers and it is thought that the first payments will be made by July However, anyone diagnosed with mesothelioma from 25 July 2012 will be eligible to make a claim. The Ministry of Justice has indicated that a consultation will be published in July. Proposals will include introducing fixed legal fees for mesothelioma claims, a dedicated preaction protocol, and an electronic portal on which claims will be registered. The aim will be to ensure that these claims are processed and settled as quickly as possible given the nature of the disease. At first glance this suggests a major shift in approach, but the removal of strict liability is unlikely to deter claimants. Employers will need to demonstrate robust systems of equipment maintenance, inspection, and associated employee instruction and training if they are to successfully defend claims based on negligence. It remains to be seen if there is a large decline in EL claims as a result of this change. 3 Outlook - June 2013
4 QUANTUM SUPPORT TO ASSIST IN DISPUTE RESOLUTION At the onset of a commercial dispute, whether it is in relation to supplier problems, breach of contract, or claims upon the business, it s critical to manage the situation effectively. Failure to do so can result in delayed response or conflict over the true entitlement under the contract. The result is damage to cash flow and a compromised settlement of the claim. The Forensic Accounting and Claims Services (FACS) team at Marsh can offer assistance in quantum support. This isn t just a case of number crunching the calculation of the loss of profit, costs, or damage suffered, but also includes an overall support service to assist in the negotiation and settlement of claims. The team has experience of working successfully with both in-house and external law firms in the pursuit of a claim, from the early stages of the dispute in the provision of order of magnitude calculations for decision purposes, to producing a full report on quantum. Its skills in negotiating claims can be valuable in assisting a client to ensure that a commercial relationship continues following a dispute. If a settlement can not be reached, FACS can continue the service with full litigation support, with the chosen member acting as the expert witness in court proceedings. A CASE IN POINT A client in the retail business operates stores throughout the UK, located both in and out of town. When structural problems were incurred at one of its out-of-town shopping centre units and closures were necessary, the client needed assistance in preparing its claim against the landlord operating the shopping centre. The FACS team was instructed to calculate the loss of profits resulting from the closures and, as the claim was substantial and liability had not been admitted by the landlord, present the claim in a format suitable for submission to the court. The situation was made worse by the temporary nature of initial repairs, and the need for future closures to enable proper repair. Therefore, the claim needed to be presented for past and future loss of profits. FACS was able to do this using the information provided by the client, including actual growth rates and forecasts, and external research of specific retail statistics. 4 Outlook - June 2013
5 NEWS IN BRIEF LIABILITY INSURANCE HOW MUCH IS ENOUGH? In the February 2013 edition of Outlook we outlined recent developments in the area of liability claims settlements, explaining why this should act as a prompt for businesses to review the level of insurance cover they purchase. The recent explosion at the West Fertilizer Company in Texas brings the issue into sharp focus. The blast killed 14 people, injured circa 200 and caused around $100 million worth of damage yet the company is widely reported to have only $1 million of liability cover. TRAVEL INSURANCE As our thoughts turn to summer and the holiday season, it s appropriate to raise the need for travel insurance for both holiday and business travel. Uninsured British travellers who fall ill on holiday this summer could face an average extra 900 bill according to the Association of British Insurers. In the US, for example, minor operations can cost 20,000. Travellers in Europe should not just rely on the European Health Insurance Card. While this will pay for the cost of medical treatment it may not cover everything that would be free on the NHS, and will not cover the cost of medical repatriation back to the UK. MARSH IS A MEMBER OF MARSH & McLENNAN COMPANIES Marsh is a global leader in insurance broking and risk management. Mercer is a global leader in talent, health, retirement and investment consulting. Guy Carpenter & Company LLC is a global leader in providing risk and reinsurance intermediary services. Oliver Wyman is a global leader in management consulting. Contact Marsh For help or more information regarding any of the topics profiled in this publication, contact: Marsh Ltd, 1 Tower Place, Tower Place East, London, EC3R 5BU Tel: The information contained herein is based on sources we believe reliable and should be understood to be general risk management and insurance information only. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such. Statements concerning legal, tax or accounting matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal, tax or accounting advice, which we are not authorised to provide. In the United Kingdom, Marsh Ltd is authorised and regulated by the Financial Conduct Authority for insurance mediation activities only Ref: 80257B6E002EDEB3_ Exp: Oct 2014 Copyright 2013 Marsh Ltd All rights reserved