Insuring Costs Only is a Bad Idea
We have recently had a number of requests for employment insurance on a ‘legal costs only‘ basis and we know one or two competitors have promoted this as a way to save money. We strongly believe that this is a very bad idea.
There are a number of reasons for this. In simple terms every claim on an employment protection policy will by definition require insures to pay for legal representation, so the potential premium saving is low (since insurers have to pay costs whatever the outcome) but by limiting cover to costs you create a recipe for confrontation and conflict.
Consider a claim where the insured feels aggrieved by the claimants conduct and does not compromise in any way. The insured and their lawyer may both have an interest in wanting to have their day in court but the insurer wants to “buy-off” the claim by making an economic payment to prevent the costs escalating further.
It’s a difficult circle to square and a situation worth avoiding!
There are much more cost-effective ways of reducing employment premiums
There are better ways to reduce employment insurance and make retainers more affordable
Clients are usually very cost conscious but as a generalisation they look closest at the total cost of an insurance backed retainer package, without deconstructing the different elements of which insurance can be a big part.
Insurers are quite responsive If a client wants to share some of the risk by taking an excess and usually offer quite generous discounts. The actual discounts depend on the type of policy but are for example in the range of 15-20% if the client pays the first £1000 of any claim. The discounts do not work so well for smaller businesses as the discounts are proportionate to size but for larger companies with good track records the premium saving can be very attractive sometimes as much as the excess itself).
There are elements of a wide employment policy that some clients may not ever need.
For example schools, care homes even doctors or dentists are unlikely to have to try to defend or assert restrictive covenants – why pay for this if no one is likely to steal their clients ? That said our claims for covenants have increased in unexpected ways, it’s not just sales staff and directors that have access to client lists – so too do accounts and IT staff!
One of the most damaging example of a covenant breach we have seen resulted from a clerk in a Printers office being enticed to join a rival.
Compliance and Legal defence is another benefit worth further thought. Larger clients will have considerable resource devoted to Health and Safety and dedicated risk management insurances which could overlap, meaning that the client could save money by deleting this extension too.
We generally advocate a minimum indemnity limit of £100,000 any one loss but we respect that for some trade sectors (such as care Homes and small scale retailers) where pay is relatively low and management control is in the hands of owners, this may be a limit that can never be reached. Reducing the limit any one claim to £50,000 (our minimum) can create a saving in the premium.
Hourly charge rates
As you will appreciate, since every claim we receive will incur some legal representation costs the blended hourly rate for handling claims is a big driver in the cost of employment insurance. The fact remains that while every retainer generates cash flow for the firm, you may not land the retainer at all if the package cost is too high.
Arranging insurance with a high charge rate for a low risk client is daft – if they have no claims the firm will get no supplementary income anyway, but you may succeed in setting the total price at a cost the client will not accept in the first place.
There is a balance of course, we advocate a degree of risk assessment and setting your charge rate as if you are effectively buying insurance simply as a means to protect the retainer from the unexpected demand that an ET claim can create.
What’s in the retainer? What’s in the retainer?
There is no standard package or formula for setting the monthly retainer cost.
What we observe is that generally speaking redundancy planning, TUPE, Union representation and collective bargaining and the drafting of new contracts, NDAs or restrictive covenants are outside of standard and regarded as chargeable extras.
Online documentation are offered by many but the jury is out on how much clients value this service (which can be expensive to maintain)
Published: 4th November 2019