Government announces Mesothelioma Compensation Scheme

As anticipated, and following considerable work by the ABI supported by the LMA, the UK Government (Department for Work and Pensions) announced on 25 July their plans to proceed with an insurer-funded compensation scheme for mesothelioma claimants with untraced claims.

Primary legislation will be introduced to enact the scheme in the next Parliamentary session. The cost of the scheme is expected to reach circa £60m in the first year of operation (2014), depending on the volume of claimants. This is roughly equivalent to 5% of UK Employers' Liability Gross Written Premium, falling to around 2% – 2.5% in subsequent years.

The first levy will be collected in 2013. Lloyd’s total market share is circa 15%, and so the total potential cost to Lloyd’s insurers could reach £10m-£20m in the first year. Members writing UK EL business are advised to factor the initial levy (which could be equivalent to 5% of EL GWP) into their 2013 business forecasting. Insureds have been informed to expect increased EL costs. 

This compensation scheme should be considered in the context of the alternate, worst-case scenario (in terms of cost), proposed by the previous Government; the establishment of an Employers’ Liability Insurance Bureau, which would respond to all untraced EL claims, with projected costs of 5 – 10 times greater than a meso-only scheme.

The meso scheme will be based upon the MIB model, and operated via the Employers’ Liability Tracing Office (of which all Lloyd’s EL syndicates are already a member). Membership of ELTO will be made compulsory in primary legislation, and the processes of the scheme will be set out in a new Pre-Action Protocol under Civil Procedure Rules.

The Government agreed that compensation levels will be set using a tariff based on a percentage of the average damages awarded in the civil courts. Awarding a reduced percentage of civil damages will ensure that a financial incentive to trace a specific insurer is maintained in the system.

For further information, please contact Tony Ellwood - tony.ellwood@lmalloyds.com - or David Powell - david.powell@lmalloyds.com.


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LMA Bulletin
 

Date:  21 August 2012

From: Senior Executive, Underwriting

Ref: LMA12-019-TE



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Tony Ellwood
Senior Executive, Underwriting