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17 Dec 2002 : Column 815continued
Mr. Desmond Swayne (New Forest, West): I rise to present the petition of Mrs. Angela Norman, who trades in Lymington under the name of the Sweet Joe Pye. Her petition is concerned that EU directives on herbal products will remove people's freedom to treat themselves with a range of traditional vitamins, mineral supplements and herbal medicines by driving a range of products from the market.
The Petitioners therefore request that the House of Commons urge the Government to invoke article 2 of the Euro-Israel Association Agreement and impose an immediate embargo on British arms exports to Israel, to be maintained until Israel ends its illegal occupation and respects all UN resolutions.
Dr. Vincent Cable (Twickenham): I am grateful for the opportunity of an Adjournment debate on employers liability insurance, which I know is a matter of concern to many hon. Members, as evidenced by the all-party support for early-day motion 146, tabled by my hon. Friend the Member for Weston-super-Mare (Brian Cotter).
I know that the Government have responded on the issue. The Chancellor covered it in his autumn statement, and the Department for Work and Pensions has an inquiry under way. A separate inquiry is taking place under the Office of Fair Trading. One could ask why we should have a debate, as the Government have set the ball rolling. I seek a debate for two reasons. First, to the best of my knowledge, the subject has not been properly debated in the House, at least in recent times. It is important to put on record what the issues are and the extent to which it is a problem for many of our constituents.
Secondly, it is important to clarify how the Government intend to handle the investigation that they are conducting, and particularly the overlap between the two inquiries. The Office of Fair Trading is an independent entity; it is not under Government control. It is not clear to me how its work on public liability insurance will overlap with the work on employers liability insurance in the Department for Work and Pensions study, especially as the problems are related. The two types of insurance are often sold as a package by the insurance industry. It is important that we understand how the Government intend that the two inquiries should relate to each other and what end product we can expect from them.
Like many hon. Members who have become interested in the subject through direct constituency experience, I was not aware that there was a problem until about six months ago, when a constituent came to me. She was a very elderly disabled lady, who used to go every lunchtime to the council's lunch club for pensioners, until the ambulance arrived one day and the driver said that he was under strict instructions not to help her into the ambulance. I wrote an indignant letter to the local council and was told that that was indeed correct. The council was nervous about its insurance policy and the rising cost of insurance, and could not take the risk of its employees suffering back strain by helping a disabled person in those circumstances. I was asked to understand that the insurance issue was technically difficult and that the council had to respect the conditions.
There are many more extensive problems of that kind. Many small businesses, particularly in the building industry, outdoor pursuits and care homes, face escalating insurance claims. The issue also affects the voluntary sector substantially. Many of us are getting reports that voluntary organisations that run ambulance services face substantial employer liability or public liability claims. The Boy Scouts and Girl Guides have had a big increase in insurance costs for the same reason. To what extent will the voluntary sector be covered by the inquiry that the Minister's Department is undertaking or does he envisage it being concerned purely with business narrowly defined?
The seriousness of the problem is best illustrated not by anecdote, but by some of the figures that are beginning to emerge from the industry. As far as I can establish, there has been an average increase of 30 to 50 per cent. in the cost of insurance over the past year, but some individual companies face increases of 500 per cent., and in some extreme cases, 800 per cent. On average, the increase is substantialperhaps 30 to 50 per cent.
More serious even than that are the widespread cases, which are now well documented, of large numbers of companies that cannot obtain insurance at all or try to manage without, which is potentially disastrous for their employees and the wider public. The British Chambers of Commerce carried out a survey that suggested that 9 per cent. of manufacturing companies are not covered by employers liability insurance, although that is a statutory requirement, and that 6 per cent. of all businesses are not covered. A separate study commissioned by the insurance company AXA suggested that about 13 per cent. of all small businesses210,000 businesses with 1.8 million employeesare not properly covered by employers liability insurance as the law requires.
Brian Cotter (Weston-super-Mare): Does my hon. Friend agree that, because people not having cover is so serious, the Minister should say that the current inquiry is urgent and will be brought to a conclusion sooner, rather than later?
Dr. Cable: I hope that the Minister will do so. My understanding is that the report will take three months to produce. No doubt, we will be given some confirmation about the schedule and how it relates to the timetable of the OFT inquiry.
The issue on which we need to make a little progress is why the problem has arisen. Different reasons have been advanced, some of which are self-serving for the interested parties. While reading the literature about the issue, I sensed that a blame culture is developing. The unions tend to blame business for not looking after health and safety, business blames the insurers for ripping it off, the insurers blame the lawyers for their high costs and the lawyers blame us for legislating. There is a tendency to pass the buck back and forth in deciding who is responsible. Without trying to ascribe blame, it is clear that several different factors are involved. It is probably useful to itemise them and ask whether the Minister will conduct as part of the inquiry an analytical study of what is driving this big problem in the insurance market.
First, the rise of premiums in the wake of international terrorism has affected the reinsurance market and those effects have percolated down into insurance costs generally. A second factor is the collapse of independent insurance, which dealt with the high-risk end of employers liability insurance and accounted for a lot of business. That has clearly affected the rest of the market.
There is a third factor that I do not fully understand and which the Minister might help to explain. For some years in the 1990s, the insurance industry under-priced insurance and it now appears to be trying to catch up. Various theories have been advanced about that. One refers to ferocious competition in the 1990s and another to the systematic under-pricing of products as a loss leader to attract other forms of insurance. It is not clear what happened, but that is one of the explanations given by the industry.
Furthermore, stock exchange collapse meant that companies could no longer part with their premium income as they did in the bull period of the stock market, and another factor was the emergence of new sorts of risk, especially in relation to illnesses associated with occupation. Big asbestos claims were made, and the emergence of new problems such as strain injury also led to claims.
Finally and perhaps most importantlythis is not completely clearthe no win, no fee system of litigation emerged. The industry argues that about 40 per cent. of all claims are now accounted for by legal costs. The adversarial legal system that underlies the system of employers liability insurance may well be driving up costs very substantially.
There are, however, some subsidiary questions that the Government may be able usefully to explore. Has there been a substantial increase in what one might call the compensation culture? The evidence that I have seen is mixed. I think that claims are increasing by about 7 per cent. a year, but one could argue that those channelled through the trade unions have been rising at a fairly stable rate for a very long time and that a change in culture does not explain the sudden jump.
Another factor could be that no win, no claim insurance is seriously distorting the market and encouraging a system resembling the national lottery in which lawyers and their clients go for big payouts because they recognisethis can certainly apply to clientsthat they can afford to lose the case. It is producing inequities in the damages and claims market, and it is loaded with lawyers' costs. Thus a whole set of factors is involved, and it would be useful to know the extent to which the Government inquiry will deal with the no win, no claim problem and whether the legal profession lies behind the escalation of claims.
What is the Government's role in all this? I do not fully understand the technicalities, but I believe that the Government set the discount rate through the Lord Chancellor and that that, in turn, determines the level at which damages are awarded in litigation cases. Perhaps the Minister would explain whether the matter constitutes a Government policy issue.
A problem clearly exists. The number of claims is rising by 7 per cent. a year and settlements have increased by some 100 per cent. over five years and a staggering 300 per cent. in a decade. Thus a set of factors is causing massive inflation in litigation costs, which has affected premiums.
In the remaining few minutes, I want to ask the Minister whether the Government will focus on the big policy issues surrounding employers liability insurance, and liability insurance more generally. To what extent is the insurance industry providing value for money? Will the Government study cover that, or will it be left to the Office of Fair Trading? In his early-day motion, my hon. Friend the Member for Weston-super-Mare raised issues about the transparency and consistency of the insurance market, and whether insurance companies give sufficient notice. Clearly, there are problems in the day-to-day functioning of the market, and it would be useful to know whether the Government will analyse them or leave them to the OFT.
Other issues include competition in the insurance market and the packaging of insurance products. Different types of liability are sold simultaneously, making competition more difficult to achieve. Another issue surrounding the operation of the insurance industry is the sharing of information within the industry, and it would be useful to know whether that will be examined. One of the most galling problems for small companies is that they may have a faultless track record and impeccable performance on health and safety and safeguarding their employees, but that is rarely taken into account in establishing premium rates. It would appear that there is nothing comparable to the Co-op insurance market, where good performance is rewarded and bad performance punished. It would be useful for the Government's inquiry to establish whether information sharing between insurance companies could be advanced to make the market work better. In terms of basic insurance principles, it does not appear to work at all.
A second set of questions concerns different types of illness and injury and whether they should be covered by employers liability insurance. A debate is ongoing as to whether it is reasonable and practical to expect the insurance market to cover diseases as well as injuries and the associated occupational illnesses that have arisen from, for example, asbestos, which is the classic case. That presents special problems for the industry, because claims are made many years after employees have worked and insurance was taken out.
I can see that, from the employee's standpoint, it is vital that insurance claims are met, and it is right that they should be. Basic causality suggests that insurance applies, but it presents a separate set of problems and I should be interested to know whether the Government will look at the scope of employers liability insurance, and how they propose to deal with the issue. Will they consider, for example, pooling insurance for diseases as opposed to injuries?
It would be interesting to know whether the Government intend to examine their role in funding. The industry has made various proposals, for example, for the Government to act as an insurer of last resort. They did that, rightly or wrongly, in the case of the foot and mouth epidemic. They have assumed lender-of-last-resort responsibilities in the case of terrorism and, to some extent, in other matters. The industry argues that the model of pool reinsurance, which was used for terrorist insurance, should be used for a wider range of insurance. It suggests not that the Government should subsidise the insurance market but that they should act as an insurer of last resort. It would be useful to know the extent to which the Government are considering that.
The Government's study lasts only three months and so cannot go into the issues too deeply, but has it considered fundamentally new models of handling employment insurance? There is a strong argument for getting away completely from an adversarial system driven by lawyers' costs and moving to one that provides companies with genuine incentives to take good care of their employees, have good health and safety records, and invest heavily in the rehabilitation of people who have had accidents.
There are models for such an approach. I believe that the German worker compensation scheme is designed so that in the case of accident or disease, payments are awarded according to a basic scale and there is no need for individual litigation. The industry pays a levy that varies according to how individual sectors or even companies have protected themselves against the risk of accident. It would be useful to know the extent to which the Government will undertake such a fundamental examination.