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Safety gains see falls in employers liability rates


The safety record of companies in the United Kingdom improves on better risk management and decline of heavy industry

Buyers can expect a further fall in employers liability rates in the United Kingdom next year, against a background of improved safety and rising concerns over work related illness, according to brokers and insurers.

"Health and Safety Statistics 2005/06," released by the Health and Safety Commission, showed that there had been a further improvement in safety among U.K. businesses.

Specifically the report showed a reduction in the number and rate (injuries per 100,000 workers) of fatal injuries in 2005/06 and a continuation of the downward trend experienced since the 1980s. The number and rate of non-fatal injuries to U.K. employees was slightly down in 2005/06, although they were generally static over the past decade.

There was also a steady decline in work-related illness, according to the HSC report. The incidence rates for musculoskeletal disorders—such as injury to back or limbs— continued to decline over the period 2001/06 as did the incidence of work-related stress, depression and anxiety. The "other illnesses" category also declined "significantly" between 2001 and 2006, with falls in asthma and dermatitis.

Brokers and insurers generally accept that improvements in risk management have led to fewer claims.

The HSC report does show that accident rates are reducing said Simon Collings, London-based head of the employers liability practice at Marsh Ltd. in London. But Mr. Collings warned that the HSC figures can be misleading and should not be taken in isolation. He notes that large EL insurers argue, "with some merit," that with the decline in U.K. manufacturing in favor of high technology and service sectors, accident rates would have changed.

John Murphy, U.K. and international liability underwriter at Brit Insurance Holdings P.L.C., also believes that safety has improved at U.K. companies. "They are not just telling you they are doing it, you can see they are doing it," he said. Richard Nicholls, the London based head of employers liability for large corporate clients at Zurich Financial Services agreed that, in general, there had been an improvement in safety. "From my experience there has been a great improvement in health and safety at larger companies, although there are still issues with small and medium-sized enterprises," he said.

These improvements in health and safety are affecting rates, but the market remains cyclical, according to brokers and insurers.

"I do think that the improving trend is being taken into consideration by insurers," Marsh's Mr. Collings said. He added that premiums have already been declining, but this was more a reflection of the desire to retain clients than allow for a fall in accident rates."

According to Mr. Nicholls, the EL market in the United Kingdom between 2001 and 2004 was the hardest in his 30 years in the industry. However, 2005 saw a levelling off in rates, with further reductions in 2006, according to the Zurich underwriter. "We had a 10% reduction across our book and I expect that will be mirrored by other companies," he said, noting that there had been increased competition in the market with new entrants and with some existing players becoming more aggressive.

"I don't think that there will be a significant change to market conditions in the next 12 months. I expect rates to reduce next year," he predicted.

Marsh's Mr. Collings believes that safety records could have more relevance when the market hardens. "An interesting dynamic will be when the market turns. Clients that are able to demonstrate that the underlying risks are improving will not be open to the same level of price volatility," Mr. Collings said.

"It is cyclical and the market will get to a stage where pricing is unsustainable. People are starting to turn down risk, but I don't expect a hardening in 2007," Marsh's Mr. Collings said.

While rates are due to fall next year, old-year asbestos claims and problematic future claims, worry insurers.

The HSC estimates that there are between 3,000 and 12,000 occupational cancer deaths per year. An estimated 4,000 of these are thought to be asbestos-related with nearly 2,000 deaths in 2004 from mesothelioma alone. The HSC believes that mesothelioma deaths will peak somewhere between the current level and 2,450 some time between 2001 and 2015.

"Everybody is twitchy about disease claims," Marsh's Mr. Collings said. "Disease claims are worrisome for the industry because they are an unknown and because EL is written on an occurrence basis so claims can be open-ended," he said.

"The insurance industry accepts that it is covering the next asbestos, and factors in a contingency as part of the premium for unknown losses. Whether this gets squeezed out by competitive pressures remains to be seen," he added.

Zurich's Mr. Nicholls said: "Asbestos is still a big issue for us and the entire industry and will be for many years to come. For many years people have been trying to identify the new asbestos. Vibration white finger, repetitive strain injury and stress have been talked about in recent years. We have seen an increase in stress claims—not exponential—that have arisen from bullying."

Costs clawback

Another issue for employers liability insurance are legal costs. Brit's Mr. Murphy said: "Insurers have never really been worried about fatalities. Rather, the smaller claims, where legal costs are considerable. Legal costs on average are approaching 50% of an EL claim," he said.

Mr. Nicholls also lists legal costs as a worry. "The main concern is the cost of delivering compensation—that's the real issue today. We have the impact of the National Health Service clawback from January next year which is expected to add 5% to 8% to injury claims."

Under that change the state-funded by the NHS will be able to recoup certain costs of treatment from employees and insurers.

Also on Zurich's radar are nanotechnology, electro magnetic fields and white collar claims. "We have already seen more claims under the Protection from Harassment Act 1997," he said.