The cost of insurance has become a huge issue for businesses of all kinds and sizes in recent years. Firms have been driven out of business because they cannot afford to cover themselves.

It has even led to some firms apparently operating without either public liability insurance (which is of course optional) or employers liability insurance (which is definitely not).

Professional and advisory firms, which have additional insurance needs, have had to absorb the cost of increased indemnity cover which they then pass on to their clients.

The UK government has taken steps to address this issue. It encouraged insurers to take clients’ health and safety records into account when assessing the cost of cover. It also decided that, with effect from April 2005, small companies which have no employees apart from the owner/director, will not have to carry employers liability insurance. This will affect some 300,000 single member companies.

Circumstances vary of course – for example, outworkers are considered self employed contractors and not employees. Where a spouse is a director/company secretary in name only, then they are unlikely to be employees; but if they do take an active part in the business, then they may be considered as employees and so in need of the insurance.

However, at the same time the compulsory insurance rule is being scrapped for some, along comes a new development which could reverse any gains achieved to now.

Recover treatment costs

From this month (April 2005), a dormant provision in the Health and Social Care (Community Health and Standards) Act 2003 will be activated. The provision in question allows the National Health Service in England and Wales to recover the costs of treating persons who have incurred any sort of injury and who have successfully sued a negligent party for compensation.

Equivalent steps are also being taken in Scotland.

The NHS has been able to recover from insurers the costs of treating those injured in road traffic accidents who have gone on to make a successful claim for compensation. Now this long-standing situation is now to be rolled out to cover things like accidents in the workplace, as long as some party (most obviously the employer) is held to have acted negligently and found liable to pay compensation to the injured party.

Take an injury incurred in the workplace by a member of the employer’s staff, for example. If the injury can be attributed to some form of negligence on the part of the employer, and the employee successfully sues his employer for compensation, any resulting NHS treatment costs can be claimed back by the NHS.

Similarly, if a client, customer or member of the public suffers an injury in or around the employer’s premises which is then held to be the responsibility of the employer, the NHS will again be entitled to recover the treatment costs. Charities and voluntary organisations will be affected in the same way as commercial businesses.

In both cases, the costs will be met by the employer’s insurance policies. The one caveat to this is that where the employer’s policy has an upper limit on the amount of cover provided (as opposed to a lower limit or excess figure), the insured party – the employer – will be liable for the remainder.

So if, for example, the NHS claim is for £30,000 and the employer’s cover is only worth £25,000, the employer will be responsible for the remaining £5,000 of the claim.

The effect of the change is that businesses stand to pay whether they have insurance or they don’t. The 23% annual increase in employers liability premiums recently reported by Engineering Employers Federation is likely only to continue in the wake of this new change – the Association of British Insurers estimates that premiums are likely to rise by upwards of 5%.

Where an employer decides not to take out either employers or public liability insurance, for whatever reason, it will of course not be able to look to any such policy to fund the compensation and any consequent claim from the NHS. Where an employer does not have appropriate insurance cover, then the employer will have to meet any treatment claim from his own resources.

The claims by the NHS will be capped at £34,000.

It means the most serious cases, such as long-term treatment for fractures or stress-related conditions, will not lead to an indeterminate liability.

In addition, any contributory negligence on the part of the injured employee or customer will be taken into account in attributing liability to the employer.

Accordingly, any business facing a claim is entitled to press for full acknowledgement of, for example, any failure by an injured worker to wear any protective equipment he had been directed to use.

But with the cost of calling an ambulance now put at £150 and the cost of daily hospital treatment at nearly £600, the costs will soon mount up.

In effect, some employers face not only the cost of paying compensation to the injured party but the cost of treating that party for their physical and possibly psychological injuries.

The only real answer for businesses is to ensure they take their health and safety responsibilities as seriously as they possibly can, and to reduce the risk of their staff or customers incurring injuries which may give rise to compensation claims and subsequent medical treatment.

The insurance industry is making an effort to engage with the business community on these lines and companies are prepared to reflect responsible business practices in their rates.

To minimise their exposure to the inevitable rises in premiums, businesses should be prepared, before their next renewal date, to conduct an audit of their health and safety procedures.

They should also review the proper functioning of all mechanical equipment and re-assess their operations for any possible weaknesses in materials, fabrics, training needs and premises maintenance.

Time and expense incurred in doing this, and documenting any improvements made, may prove worthwhile in the long run.