Employers demand government action over rising insurance costs

Employers struggling under the mounting costs of insuring their companies were yesterday frustrated by two Government reports that found that little can be done to stop rates from continuing to rise.

The Department for Work and Pensions and the Office of Fair Trading yesterday published their parallel reports into the liability insurance markets, but disappointed business leaders by failing to act to stop the increasing insurance burden on employers.

"The findings of the DWP report are difficult to comment on, because there is absolutely no substance to them whatsoever," said Brian Cotter MP, the Liberal Democrat spokesman for small business. "It is like the emperor's new clothes - there is simply nothing there.

"Business is crying out for action and the Government, after six months of mulling over the issue, has done nothing but conclude that there is a problem."

Employers liability (EL) insurance has been compulsory for all companies since 1972. Amid fears that premiums were rising so fast that companies were unable to afford cover, the DWP began investigating the EL market in December. The Office of Fair Trading undertook a wider study across the liability insurance sector.

The DWP report found that although the "change in prices was particularly acute in some sectors" and many businesses "have faced real difficulties", there was not a general failure of the EL market. It has, however, promised to undertake further work and report back in the autumn.

Both the DWP and the OFT expect rates to continue to rise into 2004. The OFT, however, said it will wait until 2004 before deciding whether any it should carry out any further work.

The Confederation of British Industry yesterday urged ministers to allow "no further delay in turning its short-term measures into immediate relief for hard-pressed businesses".

The National Federation of Builders, which represents 3,000 firms, yesterday said its members could "not afford to wait for the Government to act". "It will still take time for planned government measures to have any discernible impact on premium costs and the problem is getting worse by the day," Barry Stephens, chief executive, said.

The DWP proposals to lower the costs of resolving claims did receive warm support yesterday, as did proposals from both the OFT and DWP for longer renewal notice periods, to allow firms to shop around for a better deal.

The OFT also wants to see companies promote their own health and safety records and improve their risk ratings to help with negotiations with insurers.

Poor underwriting by insurers has contributed to the rise in premiums, the OFT study found. According to the Association of British Insurers, EL insurers made an underwriting loss of £761m between 1997 and 2001. The costs of settling claims have also risen to the extent that for every £1 of premium received, the insurers' costs and expenses were £1.47. This means that they have had to raise premiums to claw back their losses.

The ABI yesterday said a major effort was needed to reduce the burden of legal costs on insurers. It says these now count for more than 40 per cent of the cost of claims and that the conditional fee arrangements used for pursuing claims through the courts, commonly known as "no win, no fee" agreements, had increased the cost of claims by up to 30 per cent. The OFT yesterday said it would look at how conditional fee arrangements operate within the next few months.