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Growing Compensation Culture Poses Major Threat to Profitability and Jobs
New survey of UK companies reveals hard evidence of the growing cost of the claims culture and the resultant damaging drain on management time and financial resources.

 

London – 27th July 2004 – UK businesses are being increasingly hampered by the costs of dealing with the UK’s burgeoning compensation culture, which in turn is diverting management resources and financial investment away from core business and revenue generating activities. These are some of the main findings from a survey into the compensation culture of UK companies and organisations conducted by Aon, the UK’s leading insurance broking and risk management company, which has found that 75% of those surveyed see the current growing trend as creating an unsustainable burden for industry, commerce and public services.

Recent arguments have cast doubt on the genuine existence of a compensation culture in the UK. A report published in May by the government’s Better Regulation Taskforce argued that the evidence does not suggest an out of control, US style compensation culture, however these new findings suggest otherwise with 62% of companies surveyed seeing an overall increase in the cost of claims to their business.

Additionally, of those surveyed:

  • 96% do not think the government is doing enough to tackle this issue;
  • 60% feel the fear of the compensation culture is hampering their business by distracting management time;
  • 49% said it diverts financial resources and 46% said it creates too much red tape.

Max Taylor, Deputy Chairman at Aon Limited, said: "Whatever the debate around the existence or not of the compensation claims culture in the UK, and our survey shows 62% have seen an overall increase in the cost of claims over the last five years, the hard evidence here is that UK businesses are picking up a significant cost in terms of managing increased insurance and regulatory costs.

“Of major concern for the future of the UK plc is the diversion of management and financial resources as companies struggle to cope with this problem, which will have an inevitable knock-on effect on profitability and ultimately employment levels,” Taylor added.

Some respondents also commented that the claims culture would hasten the growing trend for offshoring business activities away from the UK as companies seek to minimise their risks and the chances of being sued.

The top three reasons for the growth of the compensation culture were seen as:

  • the growth of ‘no win no fee’ legal services;
  • media advertising of these services;
  • the reluctance of insurers to defend claims.

“Many of the respondents felt claims numbers were being fuelled by the reluctance of insurers to defend claims because the cost of settling out of court is cheaper. One possible consequence of this might be an increase in the total number of fraudulent or spurious claims that ordinarily would not stand up in court,” said Taylor.

 

Notes to Editors

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.

This press release contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results, depending on a variety of factors.  Potential factors that could impact results include the general economic conditions in different countries around the world, fluctuations in global equity and fixed income markets, exchange rates, rating agency actions, pension funding, ultimate paid claims may be different from actuarial estimates and actuarial estimates may change over time, changes in commercial property and casualty markets and commercial premium rates, the competitive environment, the actual costs of resolution of contingent liabilities and other loss contingencies, the heightened level of potential errors and omissions liability arising from placements of complex policies and sophisticated reinsurance arrangements in an insurance market in which insurer reserves are under pressure, and the timing and resolution of related insurance and reinsurance issues relating to the events of September 11, 2001.  Further information concerning the Company and its business, including factors that potentially could materially affect the Company’s financial results, are contained in the Company’s filings with the Securities and Exchange Commission.

 

 

Aon Limited is authorised and regulated by the Financial Services Authority in respect of insurance mediation activities only.

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