Personal accident

The employer has used the benefits from a personal accident (PA) policy to put the employee through a rehabilitation programme. The employee is quickly back to work and feels no need to claim. The employer's EL claims history is preserved.

A fanciful idea? Not according to some in the industry. They argue that the use of PA benefits can be used to reduce companies' liability claims experiences, helping to limit the large premium hikes that have been witnessed, particularly in relation to EL insurance. Put simply, they see it as a way of easing the liability crisis.

But others are sceptical of such an approach. They point to the technical limitations of PA policies and argue that they would fail to make a significant impact on the problems in the EL market.

PA insurance provides monetary benefits in the event of certain injuries, irrespective of fault. The nature of the injury determines if a payment is made and the amount of such payment. Injury categories include loss of sight, loss of limbs and temporary total disablement (TTD). PA policies are bought by individuals or by companies to cover their employees.

Allianz Cornhill accident and health manager Richard Lang is one of the proponents of using PA to ease companies' liability problems. The insurer is set to launch a product next year with this idea in mind.

Visitors cover
The policy, described as visitors cover, is aimed by retailers and other establishments where members of the public go. If a visitor is seriously injured on the premises the cover will activate and pay money to the establishment. The money can be used to return the injured person back to work quickly and reduce the amount of compensation paid out under liability policies.

"If PA benefits are used to provide the injured person with rehabilitation and back-to-work programmes, it will help to engender trust between the parties and avoid litigation, or reduce levels of damages awarded if a claim were made," says Lang.

In the long run it could be used to mitigate the claims culture, he argues.

"It would need to be an industry led thing. Products need to be devised and they need to be tied in with the liability clients. "

Folgate Partnership chief executive Andy Homer has already noticed positive effects from the use of PA policies.

"One of our clients has done this and is suffering far less litigation on straightforward accidents and improved return to work time. It has had a beneficial effect on the EL position in terms of claims history and premiums."

But he stresses that such an approach takes time to filter through and benefit EL premiums, and that it must not be viewed as a panacea.

"It has to be used in the context of a benevolent organisation whose culture is to get people back to work. And it will not remove the employer's potential legal liability. The right of the employee to sue remains, although it may help to reduce the damages that can be obtained."

Detractors, however, argue that using PA to ease companies' liability problems would have only a limited benefit, as the cover is far more restricted than that provided by EL insurance.

AXA head of commercial underwriting Roy Watkinson says: "PA provides weekly benefits for only a limited period of time, which would be insufficient to cover a serious injury. And they do not provide benefits to cover pain and suffering, loss of income, full cost of care and treatment and legal fees, which are covered by EL policies."

Watkinson accepts that PA could play a part in resolving liability problems and could work in relation to small claims. But he argues it would have limited impact on larger injuries where claims could amount to millions of pounds.

"The main issue for the EL market at the moment is the larger losses. This is where EL premiums have gone up and where cover has been difficult to obtain."

Marsh head of UK retail placement Mike Jones is also sceptical. He says that many of the injuries and conditions claimed for under EL and public liability (PL) policies would not be covered by PA policies.

"The capital sums paid out under a PA policy if, for example, a person lost a leg, could be used to provide treatment and rehabilitation. But the policies will not respond to long-tail diseases, sickness and conditions such as stress and back pain."

He also points out that it would be difficult to use the TTD benefits of a PA policy to fund rehabilitation. These benefits are based on the period of disablement, so it would be problematic to use them to fund a treatment where the aim of that treatment is to reduce the period of disablement.

"Attempts to use PA to benefit EL and PL would require a radical change in PA. At present, success would depend on the risk profile of the client and the type of claims that would be made."

Jones also warns that using PA in this way would not remove the need to tackle the problems at the core of EL, such as legal costs. "If you don't address these, it could simply transfer the problem to PA."

No obligation
A further hurdle that needs to be overcome is that employers are not obliged to use the PA benefits for treatment. "They can use the money how they want," says Watkinson. "They could use it to pay someone else to do the injured employee's job. There would need to be a change of attitude from employers. It would take a lot of effort to get people to buy PA and use it in this way."

TUC senior policy advisor Owen Tudor says that employers are often sceptical of using rehabilitation and need to be persuaded of the benefits. "There would need to be a cost benefit analysis of the benefits to persuade employers to take this route."

Iron Trades general manager Paul Kurgo suggests that the limitations of PA policies could be overcome by combining them with other health benefits, such as permanent health insurance - a long term income replacement - and private medical insurance (PMI). "This would reduce the number of claims that had to be made on EL policies."

One of the difficulties in doing this is that the policies are bought by different parts of a company, says Kurgo. The human resources department will buy the PA, permanent health and PMI policies as they are seen as employee benefits, whereas the finance director buys EL.

"The problem is that in the current economic climate companies are cutting back on benefits," he says.

Kurgo suggests that a way round this could be to develop an umbrella policy which has everything - PA, PMI permanent health and EL. The difficulty is persuading the insurance industry to create such a product. "I don't think the industry is keen to jump forward and combine policies until it sees profitability. No business likes to cross-subsidise other businesses."

Trade associations could play a role in this by packaging a group of benefits for members. "We have discussed this approach with the scaffolders' trade body, bundling together PA, PMI, rehabilitation, EL and PL, supported by a captive. The captive takes the attritional losses and the insurers take the catastrophe losses," says Kurgo.

So could the idea be widened to other industry groups? Kurgo says: "Industry is diverse. To be successful it requires an homogeneous group."

Hybrid policy
Jones agrees that a hybrid policy could be a solution, but he stresses that efforts need to be made to improve the treatment that is available and make it more efficient. People need to receive the right treatment, he says.

"There should be hospitals that specialise in industrial injuries. GPs tend to just sign people off work, which leads to claims. Instead, they should be getting people into specialist clinics or rehabilitation."

Jones argues that there needs to be much more "joined up" thinking on the matter.

"No one has yet been able to do that. All the elements could exist. They are not being pulled together, but I believe they will. It will be driven by a combination of employers and product providers looking at things differently. It is a natural extension to tie things up."