Premium pressure

Businesses of all sizes have become used to rises in the cost of insurance. For some, insurance has become so expensive that they have been driven out of business altogether. There have been reports of exasperated firms operating without public liability insurance (optional) or employer’s liability insurance (compulsory).

To its credit, the Government has acknowledged the seriousness of the situation and has taken some steps to address business concerns. It has encouraged insurers to take clients’ health and safety records into account when assessing the cost of cover. And from April 2005, small companies which have no employees apart from the owner do not have to carry employer’s liability insurance. The change affected 300 000 companies.

So some progress has been made. But at the same time as the compulsory insurance rule is being scrapped for some, along comes a new development which risks reversing any gains achieved so far.

As from 29 January 2007, a long-dormant provision in the Health and Social Care (Community Health and Standards) Act 2003 has been activated. The provision in question allows the NHS in England and Wales to recover the costs of treating persons who have incurred injury and have successfully sued a negligent party for compensation. Equivalent steps are also being taken in Scotland.

For many years, the NHS has been able to recover from insurers the costs of treating those injured in road traffic accidents and have gone on to make a successful claim for compensation. But this long-standing situation is now to be rolled out to cover things like accidents in the workplace.

Take an injury incurred in the workplace by a member of staff. If the accident can be attributed to some form of negligence on the part of the employer, and the employee successfully sues that employer, any resulting NHS treatment costs can be claimed back by the NHS from the employer. Similarly, if a client, customer or member of the public suffers an injury in or around the employer’s premises which is held to be the responsibility of the employer, the NHS will be entitled to recover the treatment costs. Voluntary organisations will also be affected.

In both cases, the costs will be met by the employer’s insurance policies. The one caveat is that, where the employer’s policy has an upper limit on the amount of cover provided in a personal injury case, the employer will be liable for the remainder. So if the NHS claim is for £30 000 and the employer’s cover is only worth £25 000, the employer will be responsible for the remaining £5000.

If employers do not have appropriate insurance cover, they will have to meet any treatment claims from their own resources

The effect of the change is that businesses stand to pay whether they have insurance or not. Research carried out last year by Lloyds TSB suggests that over one million SMEs are operating at serious risk because they do not have proper business insurance cover. Even with respect to those that do, only half are fully covered by the right insurance.

Where an employer decides not to take out either employer’s or public liability insurance, it will of course not be able to look to any such policy to fund the compensation and any consequent claim from the NHS. If employers do not have appropriate insurance cover, they will have to meet any treatment claims from their own resources.

The NHS’ claim will be capped at £37 100. So the most serious cases, such as long-term treatment for fractures or stress-related conditions, will not lead to an indeterminate liability. In addition, any contributory negligence on the part of the injured employee or customer will be taken into account when attributing liability. So any business facing a claim is entitled to press for full acknowledgement of, for example, failure by an injured worker to wear protective equipment when directed.

But, given that the cost of calling an ambulance is put by the Government at £150 and the price of daily hospital treatment at £600, costs will soon mount up. And overall, some employers will face not only the cost of paying compensation to the injured party but also the cost of treating that party for their physical and possibly psychological injuries.

The only real answer for businesses is to ensure that they take their health and safety responsibilities as seriously as possible, and do all they can to mitigate the risk to staff.

The insurance industry is making an effort to engage with the business community on these lines and companies are prepared to reflect responsible business practices in their rates. To try and minimise their exposure to the inevitable general rises in premiums, businesses should be prepared to conduct an audit of their health and safety procedures before their next renewal date. They should also review the proper functioning of all mechanical equipment and reassess their operations for any possible weaknesses in materials, fabrics, training needs and premises maintenance.

Time and expenses incurred in doing this, and in documenting any improvements made, may prove worthwhile in the long run.