I chose Employer's Liability Insurance as the first specialization of 2023.
Our safety of life, proper working conditions and responsibility in our workplaces belong to the employer. Basically, every employee is entrusted to the employer. Although the consequences of situations where employers do not fulfill their responsibilities sufficiently are regulated by law, this is primarily a human, moral and conscientious responsibility.
Work accident according to the law: An event that occurs in the workplace or due to the execution of the work,
which causes death or disables the body integrity mentally or physically.
We read news almost every day about work accidents in which people lose their lives or have lifelong scars. Sometimes accidents happen to one or more than one employee, and the first thing that is examined is whether the employer has taken the necessary precautions and how much responsibility they have for the accident.
First, let's look at the scope of Employers' Liability Insurance; this branch of insurance is not well known or under-recognized.
TSB General Terms and Conditions of Employers' Liability Insurance:
Scope of Insurance Coverage Article 1
This policy covers, up to the amounts written in the policy, the compensation claims above and beyond the benefits provided by the Social Insurance Institution and the compensation amounts to be paid by the same Institution at the end of the subrogation lawsuits to be filed against the employer due to occupational accidents that may occur in the workplace due to the legal liability to be incurred by the employer as a result of occupational accidents, which will be demanded from the employer by the employees who are bound to the employer by a service contract and subject to the Social Insurance Law or their right holders. The insurer is also obliged to pay court costs and attorney's fees if a lawsuit is filed in connection with this insurance. Provided that, if the judgment exceeds the sum insured, the insurer shall participate in the litigation expenses, including attorney's fees, only to the extent of the sum insured.
In summary, as a result of a work accident, the employer may receive death or permanent disability compensation claims from the employee, the employee's family or the Social Security Institution. Employers' Liability Insurance is a legal protection that covers these claims within the limits and to the extent of the employer's fault. Although compensation is paid to the claimant - which is why it is often confused with personal accident - it actually pays compensation on behalf of the employer. The policy covers all white and blue collar employees on the payroll, subcontractors and subcontractors can be added.
Any accident defined as a work accident can be the subject of this insurance. The scope of the policy can be expanded by adding Article 2 in the general conditions.
I am posting the general terms and conditions here.
The policy has two limitations: per person (where one employee suffers bodily injury in a work accident) and per accident (where more than one employee suffers bodily injury in a work accident). The amount of compensation that the policy will be liable to pay for occupational accidents that may occur within a policy period (annual limit) is usually limited to the limit per accident.
When taking out the policy, it would be advisable to evaluate it together with the above additional extensions according to the activities and to determine the compensation limits according to your employee profile. Compensation is calculated by actuaries who are professionals in this field. Criteria such as age, death or need for continuous care, service and production employees, income, education, experience, dependents are taken into account when making the calculations.
Insurance business concepts called Short and Long tail business are important. Short Tail is the insurance business where it is known that damages will be realized and resolved quickly. Long Tail means damage/risk that occurs long after the start of an insurance contract or takes a long time to be decided. Liability insurances fall under Long Tail risks.
The Code of Obligations regulates the statute of limitations as 10 years. A claim for compensation can be made within 10 years from the date of the work accident. This means that the insurer bears responsibility for the next 10 years for each policy issued each year. This is where the concept of IBNR (Incurred but not yet reported) arises. IBNR requires a loss reserve to be set aside for expected future claims.
In recent years, the claims paid by Employers' Liability Insurers and their outstanding liabilities have been climbing like a missile since this insurance became known. As for the main reasons for this:
The lack of awareness of the content of the policy and especially the deficiencies in the notification phase created situations where the insured could not benefit from the policy. In response, many policyholders organized their processes, started strict follow-up and reported accidents.
Losses caused by the insurer claiming compensation after the conclusion of the lawsuit - The insurer's use of deduction rights in cases where the notification obligation is incomplete, increased awareness of timely notifications
Significant deviations in IBNR forecasts - For years, IBNR forecasts were also low as insurers paid very low claims and did not receive notifications, but as insureds started to report claims, IBNR provisions exceeded premiums collected.
Lawyers defending victims of occupational accidents raised the limits of compensation claimed, thereby increasing the fees for legal services. This situation also enabled insurance companies to develop a settlement reflex in a short time.
The increase in the amount of compensation determined by the courts - which led to an upward revision of policy limits and thus increased the need for more insurance capacity.
Here is an example of increasing compensation.
Last year, an electrician working in the technical and administrative affairs unit fell from a portable ladder for maintenance. When he fell, he hit his neck and was paralyzed for life from the neck down. This is really a very difficult situation for a 37-year-old young family man and his family. The company was very sorry and supported the family, but the family still demanded compensation from the company. The compensation was 3.6M TL, which consisted of both lifelong disability and lifelong care expenses. The expert report found the company 80% at fault. The actuarial calculation was consistent with the claimed compensation. The parties reached an agreement and the policy contributed to the compensation in proportion to the employer's fault. The policy will also pay compensation for the compensation payments to be made by the SSI to the family in the future and for the lifelong care payments it has tied.
Construction is one of the fields where Employer's Liability coverage is very critical. When the liability chain is not properly designed in the insurance of construction projects in the high-risk group, the project owner may face unexpected compensation. In construction insurances, the definition of the insured alone is not sufficient, and an insurance chain covering all parties must be established. For this reason, there are many project owners who have to pay compensation unexpectedly due to a work accident, and many contractors who go bankrupt and lose their jobs.
By the way, let us correct some common misconceptions about this branch of insurance:
It is not life insurance.
Employer's liability does not cover compensation for unfair dismissal and reinstatement cases
Does not cover damages in cases based on mobbing, harassment
Participates in the decided compensation in proportion to fault, if the employer is not at fault, the policy does not pay compensation
It does not pay claims arising from events that are not defined as work accidents.
The employer's own initiative as a result of the accident or compensation payments made from policies such as personal accident / life does not mean that a lawsuit will not be filed.
Situations involving criminal elements are not the subject of this insurance and are carried out with a separate lawsuit.
In the weeks of 2022, we talked about the changes expected in the 2023 renewals and the increases in health insurances. The concepts we underlined in bold lines were risk management, risk improvement and risk mitigation.
Increases in fixed asset insurance, or fire insurance as commonly known, overshadowed increases in liability insurance. In my opinion, the increases especially in Employers' Liability Insurance were an inevitable consequence of the sector's long-standing insistence on low premium policies. In addition to categories such as fixed asset, health and motor insurance, which make up the bulk of insurance costs, the amounts allocated to liability insurances were symbolic premiums until a few years ago.
While it was understandable that premiums in other branches were higher in terms of frequency and extent of losses, it was incomprehensible that the insurer was offering almost free premiums for the obligations undertaken by the insurer for 10 years from the moment of issuance.
Since it is a long-term liability, we recommend that the indemnity limits of the policy be based on foreign currency, taking into account inflation and other economic changes. We see that the policies of highly aware institutions have limits determined by anticipating the future, but we should underline that the employer's liability limits are too low to meet any needs, especially in industrial risk insurance policies known as package policies.
So what are the levels of premiums today as compensation rates have increased so much and limits are based on foreign currency?
In general, there are increases close to 100%. Premiums for high-risk industries are much higher than in previous years. In some lines of business, we hear that coverage is not available even if the insured is willing to pay high premiums (construction, shipyards, iron and steel, ports, electricity distribution, etc.) It is unacceptable not to provide coverage; a premium appropriate to the risk and the profile of the insured should be offered.
Due to the anxiety caused by the lessons learned from the past, we observe an increase in claims notifications. The insured tends to report every situation that is recorded as an occupational accident just in case, which naturally increases the outstanding reserves and puts a pessimistic, damaged and loss-prone profile in front of the existing or potential insurer in the next period. This image reduces the appetite for bidding and leads to an overpriced approach.
Recognizing that not every occupational accident will result in a lawsuit, establishing reporting processes and criteria will be beneficial in controlling Employers' Liability Insurance costs. Naturally, no executive will want to take the initiative of not reporting accidents in order not to leave their company in a difficult situation in future compensation claims. At this point, Employer's Liability Risk Management will change the prejudices of the insurer and support it to reach a reasonable and logical premium level. For Employers' Liability Risk Management, services should be obtained from a team specialized in this field.
Due to being long tail, Employers' Liability is a category that insurers are not willing to provide coverage on their own. Insurers accept this risk along with other branches that generate a general premium volume. However, there are reinsurers in international markets that insure this risk alone.
Communicating your risk in foreign markets to the insurer, providing clear, accurate and realistic loss data, setting appropriate limits and developing a realistic profile are important for a sustainable and cost-effective employers' liability insurance program. You can achieve successful results with a consultant who will introduce you to potential markets and support you in risk management.
As Employers' Liability is such a valuable insurance protection, I always advise all my policyholders not to insure certain risks and to take out this policy with that budget instead. No matter how big or small, the compensations can seriously shake the financial balance and reputation of an employer, so do not neglect to get Employer's Liability Insurance.
Wishing you accident-free days.
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