Personal injury claims. It is one of those phrases that send supermarket spin doctors into damage limitation mode. Whether it is a customer slipping on a grape and injuring a hip or a member of staff sustaining a broken limb through faulty machinery, the outcome is the same negative publicity and the prospect of a hefty compensation payout.
As the UK becomes gripped by a claims culture and the growth of the no-win, no-fee legal market, the spin machine is going into overdrive. Last week two reports one from the Office of Fair Trading and another from the Department for Work and Pensions warned that insurance premiums would be closely monitored to check that costs were not spiralling out of control.
So how serious is the situation? And what can supermarkets do to mitigate the problem?
Unfortunately, supermarkets are one of the hardest hit sectors thanks to a daily footfall of millions the humble grape the most commonly cited cause of accidents.
Yet, it is impossible to gauge exactly how much the supermarkets pay out annually on insurance claims. Few of the major operators would talk to The Grocer, fearing that acknowledging the practice could spark a flurry of further claims or alert the competition to the premiums they are paying. "The supermarkets fear that the more talk there is about this subject, the more they encourage the claims culture phenomenon and it is self-generating," says Andrew Litchfield, associate at legal firm Wragge & Co, which represents a number of major supermarkets in claims disputes.
A staggering 90% of claims do not even make it to the courtroom, he adds, because the supermarkets are so keen to avoid publicity that they are settling disputes out of court they could have won.
The figures for UK business as a whole, however, make sober reading. In 2002 average premiums for employers' liability insurance, which is compulsory, soared 50% while public and product liability shot up 30-40%. Personal injury claims rose by 50% while damages for injury increased by 15% a year.
Although the majority of damages are for £15,000 or under, thousands of claims of this nature are settled each year and the figure soon adds up. The British Insurance Brokers Association predicts further rises of 20-30% for employers' liability and 15-20% for public liability this year as most of the major insurers increase their rates over the next 12 months.
Now, finally, the authorities are beginning to acknowledge the gravity of the situation. Last week's reports concurred that rising insurance premiums were partly the result of a threefold increase in the number of claims since 1996 a backlash on the part of the insurers forced to foot an ever-increasing compensation bill. They added that a weak stock market had made the liability insurance sector unprofitable for insurers unless they increased premiums.
The good news is that the OFT report, which was the culmination of a five-month study into the liability insurance market, made recommendations both to the insurance industry and to businesses about how to manage the issue better (see top panel). And in its review of employers' liability insurance, the Department for Work and Pensions pledged to monitor the situation before reporting back in the autumn on any further measures it intends to take.
For some supermarkets the cost of insuring is already too expensive. Tesco is thought to have agreed an excess of £50m on its policy and it is an open secret that Sainsbury has set up a self-insurance vehicle.
Doing your own insurance
Insurance experts say it was inevitable that the big players would have to explore alternatives. "Because everyone is making claims and the average size of these claims is rising, some of the bigger companies are saying they will set up their own insurance company and fund themselves," explains Litchfield. "This gives more flexibility because they can invest in health and safety and decide to fight the claims, whereas if they have an insurer they may decide to settle the claim early for a small amount of money."
To do this, companies are going to offshore tax havens to set up their own insurance vehicles called captives'. Litchfield says: "I would be surprised if all the main supermarkets had not already set one up and if they haven't they will be looking at the option closely. Ultimately, they save money off the bottom line because they don't pay out as much in claims as they do in premiums."
Another way to cut costs is to reduce the number of claims. Increased vigilance on health and safety is the most cost-effective strategy according to Helen Molyneux, head of the claims management unit at Eversheds. "Supermarkets employ large risk management and health and safety teams and at the end of the day they have to ensure their premises are safe, clean and tidy. However, once they've done that, there's not much else they can do."
She adds that although most supermarkets receive only about 1,500 personal injury claims a year, the value of the claims has a major impact on an operator's bottom line (see case study).
Molyneux's advice is to analyse the claims information to work out risk areas within stores and then make a financial decision on what measures to take. "For example if there are a number of claims about one type of flooring they will look at whether or not it is cheaper to replace the flooring," she explains.
Safeway and Waitrose are two companies taking the health and safety aspect of personal injury claims seriously. A Safeway spokeswoman says that it pays close attention to the type of flooring it uses, ensures that packaging is no danger to staff or customers, sweeps floors regularly, trains staff and educates store managers about the potential issues.
A Waitrose spokeswoman confirms that it has had an increase in the number of customers who demand compensation after incidents in and around their stores. "However, the number we have paid compensation to has not risen to the same extent because we actively defend if the accident could not have been seen to be caused by any reasonable lack of care on our behalf," she says.
"We have a number of measures in place that ensure we do manage our public areas through continuous checks. We complete risk assessments in all areas and have regular branch self-assessments."
And what are the insurers doing? John Parker, head of general insurance at the Association of British Insurers, says they are working on a number of initiatives to aid businesses.
"The increases have been necessary, but one way businesses could reduce their impact is to demonstrate good health and safety practices."
Ultimately, however, this is unlikely to be enough. The Office of Fair Trading report highlights the lack of data on liability insurance. Last year a total of £3bn was paid in personal injury litigation but there is no breakdown by sector. Some of the worst offenders when it comes to lack of transparency are the supermarkets. There are steps that can be taken to mitigate the problem, but first the supermarkets have to admit there is one.
{{ANALYSIS }}
As the UK becomes gripped by a claims culture and the growth of the no-win, no-fee legal market, the spin machine is going into overdrive. Last week two reports one from the Office of Fair Trading and another from the Department for Work and Pensions warned that insurance premiums would be closely monitored to check that costs were not spiralling out of control.
So how serious is the situation? And what can supermarkets do to mitigate the problem?
Unfortunately, supermarkets are one of the hardest hit sectors thanks to a daily footfall of millions the humble grape the most commonly cited cause of accidents.
Yet, it is impossible to gauge exactly how much the supermarkets pay out annually on insurance claims. Few of the major operators would talk to The Grocer, fearing that acknowledging the practice could spark a flurry of further claims or alert the competition to the premiums they are paying. "The supermarkets fear that the more talk there is about this subject, the more they encourage the claims culture phenomenon and it is self-generating," says Andrew Litchfield, associate at legal firm Wragge & Co, which represents a number of major supermarkets in claims disputes.
A staggering 90% of claims do not even make it to the courtroom, he adds, because the supermarkets are so keen to avoid publicity that they are settling disputes out of court they could have won.
The figures for UK business as a whole, however, make sober reading. In 2002 average premiums for employers' liability insurance, which is compulsory, soared 50% while public and product liability shot up 30-40%. Personal injury claims rose by 50% while damages for injury increased by 15% a year.
Although the majority of damages are for £15,000 or under, thousands of claims of this nature are settled each year and the figure soon adds up. The British Insurance Brokers Association predicts further rises of 20-30% for employers' liability and 15-20% for public liability this year as most of the major insurers increase their rates over the next 12 months.
Now, finally, the authorities are beginning to acknowledge the gravity of the situation. Last week's reports concurred that rising insurance premiums were partly the result of a threefold increase in the number of claims since 1996 a backlash on the part of the insurers forced to foot an ever-increasing compensation bill. They added that a weak stock market had made the liability insurance sector unprofitable for insurers unless they increased premiums.
The good news is that the OFT report, which was the culmination of a five-month study into the liability insurance market, made recommendations both to the insurance industry and to businesses about how to manage the issue better (see top panel). And in its review of employers' liability insurance, the Department for Work and Pensions pledged to monitor the situation before reporting back in the autumn on any further measures it intends to take.
For some supermarkets the cost of insuring is already too expensive. Tesco is thought to have agreed an excess of £50m on its policy and it is an open secret that Sainsbury has set up a self-insurance vehicle.
Doing your own insurance
Insurance experts say it was inevitable that the big players would have to explore alternatives. "Because everyone is making claims and the average size of these claims is rising, some of the bigger companies are saying they will set up their own insurance company and fund themselves," explains Litchfield. "This gives more flexibility because they can invest in health and safety and decide to fight the claims, whereas if they have an insurer they may decide to settle the claim early for a small amount of money."
To do this, companies are going to offshore tax havens to set up their own insurance vehicles called captives'. Litchfield says: "I would be surprised if all the main supermarkets had not already set one up and if they haven't they will be looking at the option closely. Ultimately, they save money off the bottom line because they don't pay out as much in claims as they do in premiums."
Another way to cut costs is to reduce the number of claims. Increased vigilance on health and safety is the most cost-effective strategy according to Helen Molyneux, head of the claims management unit at Eversheds. "Supermarkets employ large risk management and health and safety teams and at the end of the day they have to ensure their premises are safe, clean and tidy. However, once they've done that, there's not much else they can do."
She adds that although most supermarkets receive only about 1,500 personal injury claims a year, the value of the claims has a major impact on an operator's bottom line (see case study).
Molyneux's advice is to analyse the claims information to work out risk areas within stores and then make a financial decision on what measures to take. "For example if there are a number of claims about one type of flooring they will look at whether or not it is cheaper to replace the flooring," she explains.
Safeway and Waitrose are two companies taking the health and safety aspect of personal injury claims seriously. A Safeway spokeswoman says that it pays close attention to the type of flooring it uses, ensures that packaging is no danger to staff or customers, sweeps floors regularly, trains staff and educates store managers about the potential issues.
A Waitrose spokeswoman confirms that it has had an increase in the number of customers who demand compensation after incidents in and around their stores. "However, the number we have paid compensation to has not risen to the same extent because we actively defend if the accident could not have been seen to be caused by any reasonable lack of care on our behalf," she says.
"We have a number of measures in place that ensure we do manage our public areas through continuous checks. We complete risk assessments in all areas and have regular branch self-assessments."
And what are the insurers doing? John Parker, head of general insurance at the Association of British Insurers, says they are working on a number of initiatives to aid businesses.
"The increases have been necessary, but one way businesses could reduce their impact is to demonstrate good health and safety practices."
Ultimately, however, this is unlikely to be enough. The Office of Fair Trading report highlights the lack of data on liability insurance. Last year a total of £3bn was paid in personal injury litigation but there is no breakdown by sector. Some of the worst offenders when it comes to lack of transparency are the supermarkets. There are steps that can be taken to mitigate the problem, but first the supermarkets have to admit there is one.
{{ANALYSIS }}
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