Treasury may step in over employers' liability crisis

The Government yesterday signalled it was receptive to the idea of forcing employers to fund some of the escalating employers' liability claims that are currently being paid by insurers.

The move comes after repeated distress calls from insurers, who have argued they are close to being unable to afford the mounting claims.

Insurers have already raised the cost of employers' liability, which covers accidents or illnesses contracted at work. Premiums have risen by as much as 400 per cent since the beginning of the year.

But insurers argue the premium rises are still not sufficient to cover this area of risk. They warn they are approaching a crunch point, at which they might refuse to write any new employers' liability business, jeopardising thousands of businesses, which have to obtain the cover by law.

Officials from the Department for Work and Pensions (DWP) and the Treasury yesterday met Mike Williams, chief executive of the British Insurance Brokers' Association (BIBA). Mr Williams said the officials were "very receptive" to BIBA's proposals, which include setting up a compensation fund made up of company contributions. He said the crisis in employers' liability was now "on the Government's radar screen".

The DWP would not be drawn on the possibility of setting up a privately-funded scheme, but said it was "monitoring the situation closely".

The Association of British Insurers (ABI) has also been meeting government officials to lobby for reform of employer liability law. It says employers' liability has been underpriced for many years, with practically no insurer making a profit from it in the last 10 years. The ABI has warned its members, weak from continued falls in shares and still reeling from 11 September, can no longer cope with the employers' liability risk.

Insurers say it has become increasingly difficult to write this line of business because policies agreed now might be affected by changes in the law that are then applied retrospectively. This has already happened in the case of personal injury law, where insurers pay out far more claims from existing policies than they expected. The ABI also points out problems lie in the definition of illnesses which can lead to compensation, because conditions such as stress can now be grounds for compensation.

John Parker, head of general insurance at the ABI, said: "There are some very, very serious issues at the bottom of this. At the moment there is a system where the insurer has to come up with a premium but cannot levy a fee for diseases in the future because it doesn't know what the diseases are going to be."