Employers’ Liability (EL) insurance is compulsory for any business that employs staff. Great care should be taken when choosing limits of indemnity, especially following recent changes to personal injury law.
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.
We explain why all customers need to review their EL limits, and offer guidance on choosing an appropriate level of cover.
Work-related injuries regularly involve issues of long-term care and loss of earnings. In such circumstances, lump sum settlements can be awarded, intended to compensate 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 very plausible.
The reduction in the discount rate has immediate implications for the potential size of future personal injury settlements (see case study example in right hand column).
Historically, it was extremely unlikely that a single claim could exceed £10m, but following the change in discount rate, this is now a very real possibility.
All businesses should consider the following six points 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.
If multiple staff are potentially at risk, you need to be seriously questioning whether those lower limits are 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.
Consider the limits you purchased if you 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.
Does your policy have inner limits – do you need to have a review to assist in understanding these?
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 are buying a policy today for claims that will be settled under tomorrow’s legal landscape.
So what are your options for increasing your policy limits?
It is important to review all these issues.Should higher limits be required, we can approach the primary insurer to request an increase. However, not all policies will be able to accommodate this, or an insurer might not have the appetite or capacity.Often, a simpler and more affordable option is to source an excess of loss policy, which delivers the required capacity above a customer’s primary limit.Excess layers are incredibly economical, in many cases customers are able to buy an additional £15m of cover for less than 10% of their underlying premium.
If you are looking to protect your organisation from EL claims, it makes sense to spend just that little bit more to ensure you are properly protected.
How we can help?
At Ascend Broking Group we bring market leading experience and knowledge to our customers delivered with a personal touch.
In addition to insurance, our expert Risk Advisers can help customers prevent incidents occurring and can help to significantly reduce the size of claims that do occur.
For more information on anything discussed in the article, or to discuss options for increasing limits of indemnity, please Contact us today.