Employers’ Liability insurance is compulsory for any business that employs staff. Following the recent changes to personal injury law that came into effect on 27 February 2017, you may want to consider whether you currently have the right level of cover.
While the statutory minimum is £5m and today’s policies tend to start at £10m, many customers will need a higher limit to adequately meet their needs.
You will find our 6 steps (below) for choosing Employers’ Liability a useful guide.
Rate change highlights need for review
Work-related injuries regularly involve issues of long-term care and loss of earnings. In such circumstances, lump sum settlements can be awarded with the intention of compensating claimants over a long period of time.
As these sums can be invested, a ‘discount rate’ is applied to offset prospective investment returns and ensure claimants are not under- or over-compensated.
Since 2001, this rate has been set at +2.5%, meaning settlements were reduced in expectation of positive investment returns being made.
However, on 27 February 2017, the Lord Chancellor dramatically reduced the rate to -0.75%, meaning settlements will now be increased to reflect expected negative returns.
£10m on a single claim is now plausible
The reduction in the discount rate has immediate implications for the potential size of future personal injury settlements.
The following 6 points should be considered when determining a suitable level of cover:
1. Multiple Claimants
The EL indemnity limit applies to each claim individually. However, work related injury claims can often involve multiple employees.
A claim, or series of claims arising out of a single cause, are considered to be one loss; therefore, thinking should always be framed in terms of whether a limit is sufficient to sustain multiple claimants arising from the same incident.
2. Concentration of staff
Employees are often concentrated in one area, for example in an office or on a building site. In these circumstances, one incident has the potential to harm multiple people.
The more staff concentrated in one place, the higher the limits of indemnity customers should be considering.
Individual claims are now reaching £10m. If multiple staff are potentially at risk you need to be questioning whether your cover is sufficient.
3. Nature of activities
The largest EL claims tend to involve injury as opposed to death, with claimants suffering long-term loss of earnings and the need for continuous care.
You should therefore consider whether customers are engaged in any activities with a higher risk of injury, such as working at height.
4. Hazardous locations
Certain locations are more susceptible to incidents and more likely to involve multiple people.
Common examples include offshore locations, railways and airports.
5. Inner limits
Most EL policies include some common limitations. For example, incidents arising from terrorism or offshore will typically be limited to the statutory minimum of £5m.
While these don’t impact the majority of customers, inner policy limits need to be considered depending on your company’s activities.
6. Future circumstances
EL claims can arise years after the alleged incident – in the case of work-related diseases, this can even be decades later.
Between buying a policy and a claim being settled, a lot can change to affect final settlement values.
The recent change in the personal injury discount rate is a perfect example of this. You’ll want to factor-in some contingency for prospective claims inflation.
Options for increasing limits
You should talk to your broker or insurer if you think higher limits are required.
Sometimes a more economical option is to source an excess of loss policy, which delivers the required capacity above your primary limit. Your advisor will be able to recommend the best option for your company.
How we can help
CLA’s insurance providers can also help customers prevent incidents occurring and significantly reduce the size of claims that do occur.
To find out more or discuss options for increasing limits of indemnity, please speak with one of our team.