Paul Kurgo, as general manager of EL insurer Iron Trades, doesn't see the market in crisis, but believes a correction factor is needed. He dismisses a proposed no-fault system, but tells Michael Faulkner that rehabilitation is key
Employers' liability (EL) could become an attractive class of business again. With insurers fleeing in droves from the market, this seems to be counter-intuitive.
But that is precisely what Paul Kurgo, general manager of EL insurer Iron Trades, says.
"If you take away the long-tail uncertainty and curtail the government's desire to load more costs on to employers and their insurers, it will be attractive," says Kurgo emphatically.
Kurgo does not see the EL market's problems as a crisis. "Crisis is a word we didn't come up with. The situation has been over-exaggerated, particularly with the comments in the press about the unavailabilityof cover."
I have sympathy for companies facing massive rating increases," he continues, "but they have had an insurance holiday for a period of time and now it's time to come back to reality."
However, he acknowledges that insurers and brokers have not communicated this well as the pace of change has been dramatic.
Kurgo is talking of the "step-change" in rates that EL insurers imposed across the board in 2002 to correct years of under-pricing, to react to new legislation and to adjust to the new claims and investment climate. Nevertheless, he is confident that increases of such magnitude will not be repeated.
"Hopefully, we will have to correct each case only once. Our current renewals are not subject to the same step-change increases They are now more in line with claims-inflation, loss history and the insureds' approach to health and safety."
He is adamant that EL pricing will not fall back into a cycle. "Rates will not drop off. They will continue to rise with claims inflation. We will not allow this class to be subsidised."
Kurgo's vision of EL is that it will become part of an integrated employee retention and welfare programme underpinned by strong health and safety management. This would encompass the statutory
EL cover in addition to employee benefits aimed at keeping employees in good health and getting them back to work as quickly as possible.
"At one end of the spectrum there would be EL cover, a legal requirement, at the other end there would be something like private medical insurance (PMI), an employee benefit. Underneath there would be things like rehabilitation and occupational health provisions. It would be absentee management with a cheque at the end."
It could not be achieved through a single product, says Kurgo, as an EL policy is in a statutory form and cannot be stretched. There would need to be other products to complement it.
Iron Trades is already making headway to provide a more holistic approach to EL. The company has developed a product called Employee Care, which attempts to take the concept of rehabilitation forward.
"Rehabilitation is only done after the claim. We want to get in ahead of the claim, to get employees back to work before they make a claim, but without compromising issues over liability. Employee Care is more of an absentee management/ back-to-work programme."
Greater use of rehabilitation is an integral part of Kurgo's solution to the EL market's problems. He is frustrated that, although the insured may be willing to use it, there are instances when the injured party may not – "there is still the mentality of wanting a cheque in the post".
"There needs to be greater incentives to use rehabilitation," he says. "The government has a role to play in this."
Kurgo proposes the use of a 'time excess' as a way to encourage the use of rehabilitation. The insurance policy would not operate until the expiry of a specified period of time. "The idea," says Kurgo, "is that if an employer were still responsible to pay for an employee for, say, a month before the insurance would take effect, then that employer would be more focused on a return-to-work programme, which would link into rehabilitation."
The creation of a disease pool and the retention of a fault-based system are central to Kurgo's proposed reform of the EL system.
Kurgo is a vehement supporter of the current fault-based system. In April, Iron Trades published the results of a study of the Australian no-fault model. The report concluded that, although the awards were less, the overall cost to the industry was higher, as more claims were made. It also said that the model removes any incentives to improve health and safety.
He is dismissive of proponents of the no-fault system, who say that building such as system from scratch would allow the problems faced by other jurisdictions to be avoided.
"The problem with the current system is not that it is a fault-based system, or that it is not a no-fault system. It is under stress because of a number of things not connected with fault or no-fault, such as the current lack of investment income, the reduction in market capacity, the fact insurers can move capital into more profitable lines and the increased claims culture.
If the UK moved to a no-fault system, Kurgo says that Iron Trades and other insurers may choose to move initially out of the EL market. "It is very dangerous to move from a system we understand to a new class of business we know nothing about. Why would we support a start-up class with inherent uncertainty?"
A separate fund to pay for long-tail disease claims is also vital to the creation of an attractive and profitable EL market, he says.
"The insurance market cannot be expected to estimate the costs of claims which might be paid out in, say, 2023. We don't know what the legislation will be at the time, or what future diseases may arise.
"A separate pool would encourage other insurers to come into the market. It would shorten the tail of EL business (which means that insurers would be less reliant on investment returns), long-term exposure and, therefore, insurance results could be predicted with more certainty."
The pool would be for long-tail disease only, as short-tail diseases such as asthma, vibration white finger and RSI exposure can be identified and conditions improved by good health and safety practices. These, he says, can be subsumed within the current system.
Kurgo proposes that a cut-off date be drawn by the government. Any claims incurred after the date would be paid out of the pool; those incurred before the date would be paid by insurers.
"Past years' diseases need to be paid for by insurers from premiums already collected. It is on their heads. Insurers need to live with the sins of the past and fulfil their obligations."
The pool would be funded by a levy on employers.
Rising legal costs is another of Kurgo's bugbears and elicits a strong reaction from him. "The Woolf reforms achieved access to justice, but at what cost?" he says with a hint of exasperation.
"The additional costs have been transferred to insurers who have to pass them on to their insureds.
"Lord Woolf set out the principles, but the reforms were somewhat low in detail. This has caused problems – people have interpreted them in different ways and have taken them as far
as possible."A case in point are conditional fee arrangements (CFAs), says Kurgo. "These have not worked as well as was intended, or in the ways intended. Costs need to be contained. There needs to be a fast-track approach on small claims where liability is not an issue. There should be no need to get the legal profession involved in every claim."
Kurgo advocates a greater use of mediation, allowing liability to be quickly agreed and claims paid as swiftly as possible. Iron Trades is already using mediation with a number of insureds. And to encourage greater use of mediation, Kurgo says that it is necessary to work with insureds to show them that the claim will be less, it will be settled sooner and the premiums will be less.
He is hopeful that in the near future claims will settle into a more predictable pattern. "The claims farmers have had their harvest – we have noticed a slight drop in claims frequencies."
He is also heartened by the fact that the Civil Justice Council (CJC) will review CFAs in July.
"The CJC is looking to simplify CFAs and we have been invited to work with it and will be advising it of our experiences. There will be new regulation by the end of the year. In five years' time we may look back and see the current problems as just a bedding down process."
This interview was conducted before the DWP review was published
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