CBI CALLS FOR NEW CURBS ON COMPENSATION CULTURE TO CONTAIN RISE IN INSURANCE COSTS
The CBI is to press for urgent new curbs on the compensation culture as part of a bid to contain “unsustainable” rises in business insurance costs.
It will today (Monday) publish its submission to a government review on business insurance as UK firms struggle to absorb premium increases that averaged 50 per cent last year.
It says the insurance industry has had to raise premium prices to cover a dramatic rise in costs, paying out £1.30 for every pound of premium income in 2001.
The CBI says a more litigious society is partly to blame for the problem with claims increasing 100 per cent over the past five years.
Its proposals for urgent action include:
- Discouraging the “have-a-go” mentality by making claimants bear a greater share of the costs should they lose a case.
- Heading off speculative claims by introducing a pre-trial arbitration procedure so only genuine cases go forward.
The CBI also wants Chancellor Gordon Brown to use this month's Budget to cut insurance costs. It says ministers should give back to business the £300 million windfall that the rise in insurance costs has given the Treasury through insurance premium tax.
Digby Jones, CBI Director-General, said: “The unsustainable rise in insurance premiums is happening at the worst possible moment for many in business. Small firms and 'high-hazard' industries face particular difficulties over the cost and availability of cover.
"One of the biggest issues is that people are more aware of their rights and more willing to take legal action. That is not in itself a bad thing, but it makes it even more important to stop abuses of the system.”
The CBI stresses that the compensation culture is not the only factor pushing up insurance premiums. Other factors include the rising level of damages awarded by the courts and the increasing range of industrial diseases.
Insurance firms also point out that it is getting increasingly difficult to offset losses through investments because of falling equity markets. The World Trade Centre tragedy exacerbated the situation, costing the global industry an estimated 70 billion dollars.
The CBI makes clear that its urgent proposals will alleviate not cure the insurance cost problem. It says business leaders want to work with the government to produce a package of measures to resolve the issue over the long term.
On the agenda is the question of whether the government should transfer responsibility for latent disease claims from the private to the public sector.
This would help cut premiums because insurance firms would face less uncertainty over the cost of future claims. But some business leaders have expressed concern that the public sector may manage this less efficiently.
The CBI also says that any long-term reforms will need to relate insurance premiums more closely to health and safety performance.
Digby Jones said: “We are dealing with a complex cocktail of circumstances that have combined to do real damage to companies throughout the UK. We need urgent government action to ease pressure on the insurance industry and the wider business community. But this must be backed by a careful assessment of the action that will be required for the long-term.”
The Labour Force Survey suggests that around one million workers suffer work-related injuries each year. The law says companies have to take out insurance so workers can get compensation for injuries caused by employer negligence.
There are two forms of compensation: Employers Liability Insurance and Industrial Injury Disablement Benefit. These cost firms up to £1.8 billion a year, with estimates suggesting that about 40 per cent of this goes on legal fees.
28 February, 2003
Notes to Editors:Attached is a copy of the CBI submission
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