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U.K. employers liability premiums expected to drop further in 2007

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Buyers in 2007 can expect a further fall in employers liability rates in the United Kingdom, a trend that plays against a background of improved safety, but rising concerns, about work-related illnesses, according to brokers and insurers.

"Health and Safety Statistics 2005/06," released by the Health and Safety Commission, shows additional improvement in safety among U.K. businesses.

Specifically, the report shows a reduction in the number and rate of fatal injuries per 100,000 workers during the period and a continuation of the downward trend experienced since the 1980s. The number and rate of nonfatal injuries to U.K. employees was down slightly in 2005-2006, although both have been generally static during the past decade.

There also has been 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 during the 2001-2006 period, as did the incidence of work-related stress, depression and anxiety. The "other illnesses" category also declined "significantly" between 2001 and 2006, with drops in reports of asthma and dermatitis.

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

While the HSC report shows that accident rates are declining, Simon Collings, head of the employers liability practice at Marsh Ltd. in London, warned that the figures can be misleading and should not be taken in isolation. Insurers providing liability coverage for large employers argue "with some merit," Mr. Collings said, that accident rates would change with the U.K. economy shifting toward the high tech and service industries.

John Murphy, U.K. and international liability underwriter at Brit Insurance Holdings P.L.C., said 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 Group Inc., agreed that, in general, there has 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," Mr. Nicholls said.

While health and safety improvements are affecting rates, brokers and insurers say the market remains cyclical.

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

Mr. Nicholls noted that between 2001 and 2004, the U.K. employers liability market was the hardest in his 30 years in the industry. However, 2005 saw rates level off with 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," Mr. Nicholls said, noting that there had been increased competition in the market with new entrants and 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" in 2007, he said.

Marsh's Mr. Collings said 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."

Even so, existing and potential asbestos-related claims worry insurers. The HSC estimates there are 3,000 to 12,000 occupational cancer deaths per year. An estimated 4,000 of these are thought to be asbestos-related, with nearly 2,000 deaths from mesothelioma alone in 2004.

The new asbestos

"Everybody is twitchy about disease claims," 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," Mr. Collings 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." Repetitive strain injuries continue to be an issue, he said. In addition, "We have seen an increase in stress claims--not exponential--that have arisen from bullying."

Another issue for employers liability insurance is 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 NHS will be able to recoup certain costs of treatment from employees and insurers.

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