London, 17 November 2005 – UK businesses and local authorities continue to be hampered by the costs of dealing with the UK’s compensation culture, and many of the causes of the problem are not being addressed by the Government’s new Compensation Bill, according to a survey by Aon, the UK’s leading insurance broking and risk management company.
According to Aon’s second annual survey, conducted just before the introduction of the Compensation Bill[1] and published today, businesses and local authorities would like to see greater Government consultation with industry and the public sector, with a view to introducing tighter limits on compensation awards and more ambitious reform. This would go further than the proposed legislation to address what organisations perceive to be the main drivers of the compensation culture: the growth of “no win- no fee” legal services (84%); media advertising on the part of “claims farmers” (70%); and reluctance among insurers to defend claims due to the lower costs of settling out of court (42%).
Aon’s survey reveals that eight out of ten (86%) of the organisations surveyed have been detrimentally affected by compensation culture this year, either directly or through rising insurance costs. In contrast to figures from the Compensation Recovery Unit[2], many businesses have experienced no reduction in compensation claims received since 2004, and only 10% have seen a decrease in the overall cost of claims. One in three of the organisations surveyed (36%) believes they are still receiving fraudulent claims.
66% of UK businesses and local authorities strongly agree that if the compensation culture is allowed to continue, it will place an unsustainable burden on industry, commerce and public services. Three out of four organisations (75%) claim that it diverts resources and financial investment away from core business and revenue-generating activities.
According to Aon’s survey, similar views are shared by Parliamentarians. Over two thirds of the MPs interviewed acknowledged the negative impact that the UK compensation culture is having on the performance of business and on the capability of local authorities to deliver a high quality of public services.
Despite the obvious seriousness of the issue, ahead of the publication of the Compensation Bill, businesses showed little confidence that the Government can effectively tackle the issue. 92% of the organisations surveyed by Aon doubted that the new Compensation Bill would successfully alleviate the problem, and 93% did not think the Government is doing enough in this area.
MPs are also sceptical, despite the recent media coverage of the Compensation Bill. Aon’s survey shows that 69% of MPs do not believe the Government is doing enough (including over half of Labour MPs interviewed); and over 90% either doubt or do not know whether the new Bill will solve the problem.
David Roberts, a managing director in the Risk Management Services division of Aon Limited said:
“The new Compensation Bill positively demonstrates the Government’s acknowledgment of this issue and its desire to implement change. Given the very clear negative impact that this culture is having to the profitability and productivity of business and public services, this is a welcome start.
“However, our survey highlights that the proposed legislation does not go far enough. It currently does little to address what businesses perceive to be the main drivers of the compensation culture. We would encourage fundamental reform of the no-win no-fee legal systems and more detail on the tighter controls envisaged for advertising on the part of claims farmers. We would also welcome a more prescriptive approach to the role and remit of the proposed claims management services regulatory body.
“Ultimately in order to protect profitability, jobs and the quality of public services, Government and regulators must listen to the needs and experience of business and local authorities. Mutual concern about this issue and the desire for requisite measures in Parliament is clear from our survey, which also highlights the potential for cross party support for giving the Compensation Bill some real teeth.”
[1] Aon’s second annual compensation culture survey was conducted between October 25 and November 4 2005
[2] The Government’s Compensation Recovery Unit released figures showing cases of employer liability registered by injured parties has fallen from 291,210 (2003/2004) to 253, 502 (2004/2005)
Survey Methodology
Aon surveyed over 200 businesses and public sector organisations, representing a wide range of industries and activities with annual turnover or budget ranging from less than £50 million to more than £500 million, via a web-based questionnaire. The research was conducted between 25 October and 4 November 2005.
CommunicateResearch surveyed 150 MPs between 12 and 28 October 2005 using self-completion questionnaires (77 Labour, 48 Conservatives and 25 from the smaller parties). Data were weighted to the exact composition of the House of Commons. CommunicateResearch is a member of the British Polling Council and abides by its rules (www.britishpollingcouncil.org).
About Aon
Aon Corporation (www.aon.com ) is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. The company employs approximately 53,000 professionals in its 600 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.
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