Employers' liability insurance cover likely to be altered

Employers' liability insurance may only be available in the future if cover excludes occupational diseases with long latency periods, according to Royal & Sun Alliance.

The insurer, which has been badly hit by a wave of asbestos claims made by engineering firms it insured in the US and the UK, said it had major concerns about the potential to be exposed to other little known or unknown long-tailed occupational diseases.

Mr Des Hennelly, head of Royal & Sun's strategic research department in Ireland, said the difficulty was that insurers could not predict the ultimate cost of claims arising from exposure to relatively new sources of employers' liability claims, such as passive smoking or work-related stress.

"The big concern is that you would have an army deafness or an asbestos-type situation," Mr Hennelly said.

In 2001, Royal & Sun Alliance had a 9 per cent share in the employers' liability insurance market in Ireland. However, since then, some insurers have withdrawn from the market, while others, including Royal & Sun, are only offering cover to low-risk categories of business.

Expensive legal costs, high claims records, insurance fraud and September 11th have all previously been blamed for premium increases, reported to be as high as 300 per cent for some businesses.

It may be necessary to exclude long-tailed occupational diseases in order to stop the cost of employers' liability cover from escalating further, Mr Hennelly said.

Last year, Royal & Sun set aside more than €540 million globally in provision for claims for asbestos-related claims. "As a group we are well aware of the significance of asbestos, although it hasn't had a major effect locally," Mr Hennelly said.

It is estimated that deaths due to asbestos-related mesothelioma, which has a latency period of more than 30 years, will continue to rise, peaking in around 2020 at double the current level. As a result, claims costs will attach to employers' liability policies written decades earlier at premiums that made no provision for mesothelioma.

New sources of claims could also arise if a link is ever established between the use of mobile phones and brain damage, according to a recent Royal & Sun bulletin. "Will employers be found liable for such injury to their employees who used mobile phones on business?" it asked.

Mr Hennelly compared the situation with mobile phones to that of tobacco.

"For many years there were disputed medical reports until ultimately it was proven beyond dispute that tobacco damaged people's health. Concerns about the risk of mobile phones might fade away as unwarranted or evidence could build up that they do cause damage," he said. "The question is, will the liability be backdated?"

These concerns have prompted Royal & Sun to question whether private insurance is an appropriate means of dealing with the financial consequences of long-tailed diseases.

A review of employers' liability insurance by the UK government could result in a proposal to create a separate mechanism to compensate people who suffer from long-tailed occupational diseases. the insurer notes.

This could mean either a state-run workers' compensation fund, organised on a no-fault basis, or risk-pooling.