Best practice – an insurer’s perspective

Headlines

• best practice in health and safety management has an impact on insurance premiums
• insurers can take a proactive role in improving risk management
• bodily injury claims inflation is increasing faster than the Retail Price Index.
  
  

As we all know, an employer has a duty of care towards its employees. If an employee suffers injury or ill-health as a result of work and believes the employer is responsible, they’re entitled to sue their employer for damages to compensate them for the injury. To do that, the employee needs to:

• demonstrate that the employer owed them a duty of care
• that the employer was in breach of that duty, and
• that the breach led to the employee’s injury.
  
  

Every employer is legally obliged to make sure that funds are always available to pay for this type of compensation. In fact, the Employers’ Liability (Compulsory Insurance) Act 1969 requires all employers (with a limited number of exceptions) to take out a policy to cover their legal liability to their employees. The annual premium of Employers’ Liability (EL) insurance is based on a percentage of the wages paid to employees, and takes into account a number of factors, including:

• the type of industry
• the inherent risks
• the claims experience, and
• the robustness of the business’s approach to health and safety management.

In today’s tough economic climate, many businesses are focusing on trying to reduce the amount they pay for EL insurance. Unfortunately, even though the business case for managing health and safety effectively has been argued for some time, some companies don’t realise that reducing EL premiums demands further investment in their accident prevention programme. It’s important to understand that there are bigger prizes at stake than merely trying to contain EL premiums. In many cases, uninsured costs are likely to far exceed those incurred in compensation payments.

How can health and safety management give business value?

Any forward-looking business should be seeking to manage out all unwanted hazards, maximising the business return and creating a sustainable business over time. This means looking beyond legal compliance and building an organisation that incorporates risk thinking into all its activities, starting at boardroom level and cascading down through the business.

Organisations also need to be aware of the legal climate they exist in, and understand that many of the developments in both statutory and common law over the last two decades have increased risk considerably.

Bodily injury claims inflation is increasing faster than the Retail Price Index. In addition, many business owners or managers know from their own experience, and from articles in the press, that the UK is becoming similar to the US in its desire to seek legal redress for any apparent wrong.

Evidence also suggests that many businesses lack awareness of emerging risk issues, such as nanotechnology or suggestions that shift work can harm health, which may impact on them in the future. These factors, coupled with an increasing realisation that reputation is an asset for a business, make a pretty convincing case that it pays for any business to ensure it is giving adequate attention to the management of health and safety issues.

What’s the insurer’s role?

Insurers are acutely aware of the increased risk businesses are facing. They regularly deal with the results of failure in the form of insurance claims, and this gives them the knowledge to offer advice and guidance to all businesses.

While regulators like the Health and Safety Executive are concerned with criminal law, insurers are mainly concerned with civil law. The requirements of civil law differ from criminal law, which is why insurers’ suggestions for improving a risk’s resilience to workplace claims may differ from any requirements by a regulator. Therefore, any business that wants to be successful in dealing with risk will need to go beyond just compliance with statutory law and create a working environment that can be compared favourably with its peers. This requires a best practice approach to health and safety management.

This need not be difficult or expensive in practice, and frequently insurers can give their customers the benefit of their risk insight. As such, in choosing an insurer as a risk partner, you need to look beyond premium comparisons and recognise the value that a proactive insurer can deliver to your business in the long term. As a key stakeholder, the insurer can extend customer relationships built on understanding, partnership and collaboration.

For example, a good insurer will share its knowledge in developing a structured approach to health and safety that will prevent accidents, occupational ill-health and, ultimately, claims. Such an approach would adopt an accepted model that’s based on competent risk assessment, achieves best practice against defined standards or guidance, and is well documented.

In addition to this, insurers may also look for adequate resources, including;

• the use of competent assistance to advise and direct health and safety management programme
• proactive commitment at a senior level (based on corporate governance requirements)
• a supportive culture that permeates throughout the organisation.
  

Any business that manages its health and safety obligations with these issues in mind should be able to negotiate favourable terms from an insurer. More importantly, it will be exploiting risk issues to enhance its business performance, which is the true purpose of risk management.

Our thanks to Jim Wilkes and Huw Andrews from Zurich Insurance who helped with this article.