Liability insurance is a significant, but necessary, cost for businesses. While insurance companies have their own complex ways of calculating premiums for a particular business, it is undoubtedly the case that your premium is affected by both the cost of claims in general and how much of a risk your business presents.
Cost of claims
Let’s focus on personal injury claims. The main spend for insurers defending personal injury claims are the level of damages paid to a claimant and the costs paid to his or her lawyer.
Scotland has long been regarded as a generous jurisdiction for certain personal injury claims compared with other parts of the UK. The ‘bereavement’ award in England and Wales following a fatal accident is capped at around £13,000, whereas the Scottish equivalent often amounts to several hundred thousands of pounds. Are we also now about to have different rules on the calculation of future losses?
When someone is injured and is entitled to compensation for future losses then the ‘discount rate’ reduced that compensation to reflect that a claimant could invest that money and make a profit. In November 2017, the discount rate was set to a negative number (-0.75%) across the UK for the first time to reflect the depressed investment market. This generally only effected the more high value cases, some of which almost doubled in value.
As of 5 August 2019 the discount rate in England and Wales has been revised to -0.25% meaning that claimants still get an uplift on damages, but a smaller one. The result of the equivalent Scottish review is awaited. If the Scottish discount rate is set lower than -0.25% we are going to have another example of Scotland being a more expensive jurisdiction for insurers. If it is lower than -0.75%, damages for future losses are going to increase beyond current levels.
The impending arrival of ‘QOCS’ (qualified one-way costs shifting) into the Scottish procedure for the first time means that defenders of personal injury claims will no longer be entitled to recover their legal costs if they successfully defend a claim in court (with certain exceptions). This is likely to increase the overall cost of claims and also increase the likelihood of spurious claims being pursued.
Risky business?
With an expensive damages regime and the arrival of QOCS likely to reduce an insurer’s appetite for defending cases to court, this does not sound positive for the costs of insurance going forward. What can businesses do to mitigate that?
The short answer is improving the risk analysis of your business. The main priority is, of course, preventing accidents from occurring. The thorough assessment and reduction of risk is key and ought to result in a lower claims history. But if accidents to do occur, businesses should put themselves in the best position to defend the resultant claims. The robust investigation of accidents and recording and preservation of evidence (CCTV, photographs, documents etc) is vital. Court actions are often raised years after an accident, by which time memories have often faded.
We work with a number of clients involved in construction and housebuilding in reviewing their health and safety procedures and policies to help minimise accidents and maximise the effectiveness of post- accident investigations and a successful claims defence. Please do get in touch should you wish to discuss.
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