A little bit of fine-tuning

Liz Booth takes an overview of recent changes int he liability field

A few years back, employers were faced with reams of new employment legislation. It seemed as if a tidal wave of change was sweeping across them. And then it went quiet.

But in the past few months, more legislation has appeared and employers are once again facing change. This time around, however, it is less about enacting completely new rules and more about tweaking the existing laws, introducing stiffer penalties, widening the reach of the legislation and making it easier to prosecute.

For example, the new environmental rules introduced in April bring in far tougher sanctions against polluters, while the first charges are being brought under the Corporate Manslaughter Act (enacted last year) and new employment rules give parents much greater working rights.

The question is whether this activity is finding its way into the liability markets and affecting people's appetite for insurance or influencing the number of claims.

Steve Foulsham, technical services manager at the British Insurance Brokers' Association (Biba), believes that first there needs to be greater education of the insured. Many employers seem unaware of the changing rules and, Mr Foulsham believes there is a real opportunity for brokers to play their part, adding value to their services.

But, he warns: "If brokers don't have these things on the agenda, potentially they are exposing themselves to errors and omissions claims. I think there is a requirement for brokers to keep up to speed on new legislation and to make sure they talk to their clients."

Mr Foulsham admits that not all the information is available yet, particularly around the new environmental rules, "not just among small to medium-sized enterprises (SMEs) but in some cases also among brokers as well".

Biba has been trying to spread the word, he says, for example through hosting a seminar at its recent conference, he adds that the Government too could do more in helping to educate.

In terms of a lack of awareness though, he says the greatest risk lies with SMEs simply because they rarely have "the luxury of having the resources to keep abreast of these things and they tend to rely on professional advisers".

Insurers have a responsibility in terms of education. Steve Adcock, portfolio manager, casualty UK & Ireland at QBE, believes the recent raft of changes herald good rather than bad news.

"These changes are aimed at improving working conditions and ensuring employees are treated fairly, while damage to the environment is minimised. The corporate manslaughter changes are about taking responsibilities seriously and we should embrace this," he believes.

The downside of legislation

Unfortunately, says Mr Adcock, new legislation also paves the way for more claims and disputes with the resultant increase in legal costs. However, he hopes the current Jackson Review may reduce legal costs generally, in turn, cutting the cost of claims.

In the meantime, like Mr Foulsham, he believes education can help to diminish the risk of claims. Insurers have a responsibility to keep brokers and clients sufficiently informed to ensure businesses are aware of any changes they need to make.

But again he stresses that the positives should be highlighted. "It is about how you put the message across. If the information is out there in a positive way it is a good thing. It becomes negative if the first thing you hear about it is someone being brought to book," he warns.

Insurers and brokers, he says, are active at every stage of new legislation, joining any government consultation. Having helped shape new rules, that work needs to be continued through communication once legislation is in place.

As Mr Foulsham points out: "It is like any other business risk, legislative changes have to be managed. Brokers can help by providing information - maybe crib sheets of the changes. They should try to make it as simple as possible."

Broker consultant Peter Franklin says the message still needs to be put out there. "People are not buying more insurance at the moment," he says, "because they are not aware of the liabilities they may face."

But he is critical of the Government for not producing a positive message. He says this lack of information has hindered brokers that are then reluctant to raise the issues with clients in case they cannot answer their questions.

Like Mr Foulsham, Mr Franklin is aware of brokers' responsibilities to their clients and urges them to keep on top of developments. "You need to inform your clients of changes," he says. "If they then choose not to insure, that is their choice but the broker has to bring it to their attention."

In the current economic climate, Mr Franklin says all businesses will look at insurance programmes closely: "Decisions made three or four years ago may not necessarily be the same as those made now. You have to tailor cover to the position you are in today."

He also suggests that higher deductibles might help clients maintain insurance in certain areas but urges brokers to stress how these new or extended liabilities may affect the business if claims were to arise.

He sees the recent changes as a "constant dribble" of new rules as opposed to the deluges of the past. But Mr Franklin warns that employers also need to be aware of how the courts interpret some of the laws as well - citing the recent trigger litigation that involves asbestos claims and pleural plaque cases, which are now to be reconsidered by the Government.

Again, the economic climate may well temper what happens next, says Mr Franklin. "The Government has other more obvious problems and I am not sure they can legislate much more."

Instead, Mr Franklin foresees more tinkering - a continuation of what has happened over the past year - with the possibility of wider liabilities and simplified prosecution procedures. The trick, he says, will be to keep brokers up to date so they can offer that added value service to the insureds, who in turn will have the opportunity to implement any necessary changes.

As Mr Adcock concludes: "A well run business will be profitable. We see it time and time again - those with good risk management procedures are the ones that thrive. This is a positive implementation." n