Insurers must keep employers' liability policies
FSA outlines tracing rules
Insurers will need to maintain a database of all employers’ liability (EL) policies they have written or renewed since 1st November 1999 under proposals published by the Financial Services Authority (FSA) this month.
The regulator hopes the new rules will maximise the chances of employees who have suffered workplace injury or disease being able to trace their former employers’ insurers and so bring a claim for compensation.
EL insurance covers employers against liability for injuries or disease sustained by employees during the course of their employment. By law, all employers in Great Britain (other than public bodies and some family-run businesses) must have EL cover.
Most claims are brought against current or recent employers without difficulty. But problems can arise when the claimant needs to find a former employer (who may no longer exist) or trace the insurer who provided the cover at the relevant time.
This is particularly common in the case of "long-tail" industrial diseases, such as asbestos-related conditions, where the employee may have been negligently exposed to asbestos many years ago but the symptoms have only recently become apparent.
Under a voluntary tracing scheme set up in 1999, insurers agreed to keep historical data and maintain records of all current and future EL policies for 60 years. But this has still left some claimants unable to trace the relevant insurer and bring a claim.
In February 2010, the Department for Work and Pensions consulted on proposals to set up an electronic database of EL policies managed by a new Employers' Liability Tracing Office (ELTO) and an Employers' Liability Insurance Bureau, which would provide a compensation fund of last resort if no relevant employer or insurer could be found.
That consultation (pdf) closed in May and the DWP has yet to announce its policy decision. In the meantime, however, the FSA is asking for views on what tracing information insurers should be required to provide.
Under the FSA's proposals, all insurers with permission to carry out contracts of general insurance in the UK would have to notify the regulator whether they write UK commercial lines EL insurance and, if so, provide a website address where policy information is available for tracing purposes.
This would help the regulator identify insurers who provide EL cover as an add-on to other insurance. Under current rules, this information will not necessarily be apparent from their FSA returns. It would also include European insurers who have permission to transact EL business in the UK.
From this, the FSA would publish a list of general insurers with potential EL liabilities and the links to the tracing information.
Each relevant insurer would be required make tracing information available on its website or that of a tracing office. This would be in the form of an EL register, certified by a director, listing policy numbers, employer names and addresses (including subsidiaries covered by the policy and any changes in name) and coverage dates. The register would be updated on a quarterly basis and audited each year.
The paper proposes that the required information should include the employer’s tax reference number (quoted every year on every employee’s P60 form) and, where appropriate, the Companies House reference number, which remains the same if the company changes name and is stored even after it has gone out of business.
In order to ensure the information is only used for tracing purpose, the FSA suggests applicants would have to register to gain access, giving their contact details, and that any copying or downloading could be disallowed.
Where insurance business is transferred from one insurer to another, a new rule would require the transferring firm to provide the transferee with tracing information for any EL business included in the transfer. In the absence of a transfer, however, the original insurer would remain responsible for maintaining tracing information, even if it no longer writes EL business.
Some policies go back decades. Extracting information about policies written before the voluntary tracing scheme began would be time consuming and expensive. For this reason, the new rule would only affect policies entered into, renewed, or under which claims were made, on or after 1 November 1999.
None of this would affect insurers’ existing obligations to keep and maintain adequate records. In particular, the FSA expects insurers to retain all records relating to policies, whenever written, to ensure they meet claims when due.
Insurers should continue to search for tracing information requested by claimants, irrespective of the policy date. Firms who find such requests unduly onerous can apply to the FSA for a waiver or modification of the rules.
Since the FSA will be unable to impose regulations directly on a tracing office, it intends to place an obligation on insurers to make sure the tracing office meets certain conditions.
Insurers would need to have adequate evidence that the tracing office maintains an adequate database and records of the information sent in by firms and has suitable arrangements for data security and for dealing with search requests. Insurers would also have to maintain their own records of the information they provided.
The FSA estimates that its proposals would entail a one-off cost to the industry of about £30.7m, although the costs of including historical information are likely to vary widely from firm to firm. The average ongoing annual cost would be about £3.1m as tracing information becomes part of normal policy processing.
The consultation (pdf) closes on 14 September 2010.
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