A delicate claims balancing act

The insurance industry will be asking whether the lobbying was all worthwhile, following the publication by the Department of Work and Pensions of its proposals for tackling the problems in the employers' liability market. The proposals are more limited in scope and ambition than many had hoped, especially on the issues surrounding the funding of long-term disease claims.

It is two years since the market went into spasm when the years of heavy losses and spiralling claims costs collided with the aftershock of the 11 September loss.

The DWP suspected elements of this crisis were short term and that the market was under-going a correction, albeit a drastic one. Its faith in the ability of a free market to correct itself and find a new equilibrium seems to have been justified.

The EL market is still there and most employers can find cover. Government and industry concern is now focused on whether that equilibrium has settled at too high a level and should be lowered through government intervention.

This gives context to the proposals the DWP has produced, which are almost all aimed at reducing the cost of claims.

Most of the proposals are relatively uncontroversial. No one is going to argue against the high-profile endorsement of rehabilitation or the further encouragement of non-confrontational methods for settling claims.

The bite comes with the proposal for a fixed legal fee regime for workplace accidents. This has been welcomed by insurers but bitterly attacked as premature (at best) by claimant solicitors.

The DWP is right to focus its proposals on claims because the proportion of payouts soaked up in legal fees is, frankly, obscene.

If this doesn't work, the government will probably return to the issues of separating accident claims from long-term disease claims, something the insurance industry is keen to keep on the agenda. And it is not hard to see why. It would only take one more significant addition to the menu of long-term diseases to unbalance the fragile new equilibrium in the EL market.