Tackling the United Kingdom’s Runaway Compensation Culture

Business Insurance

UK drivers are facing the biggest premium hike in almost four years according to Financial Times, and industry experts are blaming the United Kingdom’s runaway ‘compensation culture’. Compensation culture is a negative term used to describe a litigious society in which most claims for compensation are thought to be frivolous, fraudulent and unwarranted.

Critics of the compensation culture cite rising numbers and severity of simple whiplash claims and other fabricated injuries in the workplace as evidence that the United Kingdom’s compensation culture is out of control, and neglecting to rein it in could hinder UK businesses’ precarious recovery. For example, a November 2014 survey found that 10 per cent of UK consumers have made fraudulent or exaggerated whiplash claims or know someone who has. Even worse, data from the Association of British Insurers revealed that for every £1 paid to settle ‘slip and trip’ liability claims — another commonly exaggerated claim — an additional 93p is paid out in legal fees. This, together with a legal system encouraging people to make fraudulent or exaggerated claims via ‘no-win-no-fees’ lawsuits, shoulders many UK businesses with disproportionate legal costs.

But high legal costs are not the only hazard of falling victim to the compensation culture. As a business owner, defending liability claims invites the possibility of huge fines, reputational damage, restricted future business opportunities, higher insurance costs, prosecutions, a public declaration of guilt, and a more protracted procurement process since such processes require disclosing health and safety performance.

Opinion on compensation culture is divided — some believe it is merely a manufactured crisis. However, the strategies for protecting businesses from compensation culture — whether real or not — are beneficial for every organisation. Strategies such as creating effective management systems, undertaking constant risk assessments, and charting audit trails can help prevent future claims. And, of course, ensuring your business has robust insurance with no gaps in cover is vital.

The government is lending its support to businesses fighting compensation culture by implementing a new medical reporting panel, Med Co, which goes live on 6 April 2015. After that date, claimant lawyers will no longer be able to source medical reports from individuals or organisations with which they have a financial link. Med Co will provide unbiased medical reports for whiplash claims and other soft tissue injury claims arising from road traffic accidents. Find more information here: www.medco.org.uk.