The Department of Work and Pensions (DWP) in its first report on the review of Employers’ Liability Compulsory Insurance (ELCI) noted that a health and safety performance index is needed for Small and Medium Sized employers (SME) to enable insurers and/or their brokers to get a measure of health and safety performance of SMEs (DWP, 2003). Insurers tend to use a book rate for SMEs based on their sector and number of employees. It is difficult to justify a company specific appraisal, as the cost of the appraisal is likely to be disproportionate to the premium. SMEs tend to lack a statistically reliable claims record to allow company specific experience rating. The 2003 “Survey of compliance with ELCI” (Wright et al, 2003) found that over 95% of micro firms, about 90% of small firms and over 60% of medium sized firms did not report any ELCI claims in the past 3 years. Therefore, a simple rating scheme is needed that SMEs can complete and/or provide information for, and that insurers can then use when appraising SMEs.
The importance of this work has been elevated by the recent significant increases in the cost of ELCI (DWP, 2002, Office of Fair Trading (OFT), 2003, Federation of Small Business (FSB), 2003). It is considered vital that a tool is available that enables health and safety performance to be taken into account by insurers for SMEs. This should help facilitate fairer risk based premiums and give recognition to ‘good’ employers. It is also thought that by linking premiums to performance this will provide employers, specifically those with higher insurance premiums, with a strong financial incentive to improve health and safety performance. Previous research (Wright & Marsden, 2002) has shown that the desire to contain or reduce the financial cost of ELCI can act as an incentive for firms to improve health and safety performance, if there is a clear link between their performance and their premium. It is difficult to achieve this on the basis of claims experience due to the very low rate of claims in individual SMEs.
Therefore, this study aimed to:
This report and the work it describes were funded by the Health and Safety Executive (HSE). Its contents, including any opinions and/or conclusions expressed, are those of the author alone and do not necessarily reflect HSE policy.
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