The Market

Making a Solid Stand

The Employers' Liability (EL) market is a changing sector and a very volatile market, with the potential to hurt insurers. With threats such as asbestosis claims hanging over the sector, placing risks at a competitive rate and with a respectable margin has been made more difficult for brokers.

Meanwhile underwriters face the hardship of calculating claims costs that many manifest themselves decades after a policy is written.

Historically, the EL market has predominantly been a loss-making market with a negative underwriting result.

In the last year there have been rate reductions of up to 10% following better claims exposure.

Simple economic factors such as the decline of heavy manufacturers in the UK, have added to this reduction.

The reduction is fundamentally linked with better risk management within the sector.

"Today, health and safety is present at some level in most organisations, stakeholders have had much more involvement in health and safety, including insurance carriers, brokers and organisations such as AIB." - Paul Woodward, EL Manager AIG Europe

Other aspects that can help the process is managing incidents effectively and providing pro-active rehabilitation so that people are able to return to work quickly.

According to Richard Nicholls, head of commercial lines at Zurich Global Corporate, approximately two million people a year suffer from illness caused by current or past work experiences. He also estimates that there are about 2,000 mesothelioma claims and thousands more with other cancer related illness.

The overall cost of claims has been way ahead of inflation and this looks set to continue in 2007. In addition, increased competition from new carriers has added to the general squeeze in the EL sector.

Established insurers are paying for business from some time ago but, at the same time, new carriers have entered the market and don't have the same trial of business. Therefore, they don't have the claims infrastructure of the older players and can offer lower premiums.

"Previously, there were many work related accidents but only a small percentage of those would be pursued as claims. Now, there is little risk involved in making a claim the 'no-win, no-fee' culture has encouraged more people to pursue claims." - Owen, Gorman, Director of Sigma Claims Solutions

It is estimated that £104 is paid in legal fees for each £100 in compensation received by a claimant in smaller personal injury claims (between £1,000 and £25,000). Another factor that will undoubtedly increase inflation is the introduction of NHS recovery costs, which were implemented on 29th January 2007.

Added to this will be the rising incidence of stress-related cases, bullying claims and corporate manslaughter charges. The EL market appears to be heading towards further unpredictability and margin losses.

The future of the EL market will always be a volatile environment but there are measures that can be taken to make it a little more predictable by using health and safety and risk management procedures.

September 2007