Rise in personal injury awards a reminder to assess risks
THE announcement in February of an increase in the rate at which personal injury awards should be paid sent shockwaves through the insurance industry amid fears of increased premiums and declining profits.
But it also provided a timely reminder of the importance of reducing risks in the workplace and redoubling efforts to avoid injuries and accidents occurring in the first place.
It stems from a change in the so-called Ogden Rate announced by the Lord Chancellor Elizabeth Truss.
The rate works under the theory that the party providing the personal injury award can discount the sum provided to the claimant by a small amount because the recipient will be able to make up the difference between the actual award and the sum provided by investing the money.
A rate of 2.5 per cent was adopted in 2001 to reflect the small and conservative investment gains that accrue over long and low-risk investments.
It meant that a claimant entitled to £1,000 with a 2.5 discount rate would receive a £975 sum because they were expected to be able to earn 2.5 per cent interest a year on the money.
A change of the rate to -0.75 per cent was considered drastic because it effectively requires any party paying a claim to increase - rather than discount - the sum that is provided to the claimant.
The Lord Chancellor justified this decision by citing previous case law establishing that the purpose of awards for personal injury victims is to put the injured party in the financial position that he or she would have been if there had been no injury.
The issue serves however to remind employers of the reality that people can suffer serious and often life-changing injuries in the workplace.
The challenge for business owners is to be ready for such scenarios and form practices to avoid accidents happening in the first place.
With the right professional advice, businesses can be guided through several key steps to ensure best practice is observed.
Having adequate insurance cover is crucial but it is worth little if not accompanied by well-planned health and safety procedures and training.
In the first instance, a detailed risk assessment is imperative to identify existing and potential hazards and document them.
A full audit of current health and safety practices and processes is also necessary, as is ensuring they are tailored to your sector and business activities.
Policies should cover risk assessments, method statement, construction phase plans, safe systems of work and management documents.
Where accidents occur, it is vital businesses have the resources available to minimise the effect, that processes are robust, and that documentation is available to defend the claims.
The process should also include consideration of risk transfer and working with advisers on whether their limits of indemnity are still adequate given the rate change.
Although not inevitable, workplace accidents do happen and by being proactive now, business can avoid running up huge compensation costs in the longer term.
:: Richard Willis is managing director of Willis Insurance and Risk Management