Dust blusters

The actuarial profession’s report into ‘compensation culture’ has arrived at a handy time for insurers fighting asbestos claims. Are the beancounters exaggerating the problem? By

It is not really in the nature of bean-counters to knowingly oversell statistics, but when it came to putting a price on the dread ‘compensation culture’, they were prepared to make an exception.

According to a 2002 report by the actuarial profession, the yearly bill for claims was a snappy £10bn, which made a headline-friendly 1 per cent of the UK’s gross domestic product. The costs were “by no means precise” and occasionally relied on “some heroic assumptions”, the actuaries acknowledged. But what is a couple of billion between friends?

This report was revisited last month by the Lord Chancellor in a speech marking the Government’s response to the Better Regulation Task Force’s report earlier in the year. That group had found that the so-called ‘compensation culture’ did not really exist in the UK. “Many of the stories that we read and hear either simply aren’t true or only have a grain of truth in them,” it found.

Lord Falconer of Thoroton agreed. “As the stories of a compensation culture abound, so an unrealistic fear of litigation grows,” he said. “Yet some of the figures used in the debate are woeful.” That neatly brought him on to the 2002 report, with its “heroic” assumptions. “We now know that some of their assumptions were not just ‘heroic’, but ‘heroically wrong’,” he reflected.

The actuaries’ flamboyant approach to statistical evidence extended to the rather florid copy that went with it. “We might move from a country renowned for its ‘stiff upper lip’, where misfortune is greeted with gritty stoicism, to a country where every mishap leads to a complaint,” the number-crunchers reckoned. “A potential consequence of the compensation culture is that the rich tapestry of life gets dumbed down and reduced to bland, humourless interactions, which is not what we fought a war for.”

At its time of publication, lawyers complained that the report was, as personal injury (PI) specialist Jeff Zindani put it, “about as credible as a briefing from Donald Rumsfeld on the threat from Iraq”.

“Cynical mischief-making” was the view of the then president of the Association of Personal Injury Lawyers (Apil) David Marshall. The £10bn was “meaningless”, he argued, taking exception to the inclusion of the one-off cost of the BSE crisis.

Obviously, the reservations of lawyers did not stop widespread coverage of the report. The apparent credibility of hard statistics appealed to thoughtful leaders in the broadsheets and the jingoistic tone was a winner with tabloids looking for more lawyer-bashing copy.

As the Lord Chancellor called for “an injection of common sense” last month, a legal challenge began in the High Court which is attempting to render a whole class of asbestos claims ineligible for compensation. It just so happened that the actuarial profession also had a new report into the total future UK cost of asbestos-related diseases (somewhere between £8bn and £20bn) the week before the High Court hearing. “Asbestos is certainly not yesterday’s problem – its effects will continue to affect insurance companies and healthcare providers in the West for decades to come,” reckons Julian Lowe, who chaired the working parties that produced both the asbestos and compensation culture reports.

Insurers Norwich Union and Zurich are trying to strike out claims by sufferers of pleural plaques in the current test case, which features 10 claimants. Pleural plaques are internal scars on the lining of the lungs that can be a marker of asbestos exposure. The insurers argue that, because plaques are not a disease and do not cause symptoms, the condition should not attract compensation.

For claimant lawyers, this challenge has echoes of the Fairchild appeal regarding mesothelioma, the invariably terminal asbestos-related cancer (the ruling was given on 16 May 2002, but with detailed reasons presented on 20 June 2002). The insurers tried to persuade the courts that the victims could not claim whether they had been exposed to asbestos by more than one employer, hence they could not prove who was responsible. Two years ago the argument was thrown out by the Law Lords.

That appeal was denounced as a technical attempt by industry to evade its responsibility. “They think they have justice on their side this time because people aren’t dying as a result of pleural plaques, but what’s never mentioned is that none of this needed to have happened at all if the employer had taken basic safety precautions to prevent people being exposed,” comments Colin Ettinger, Apil president. “I have no sympathy for the insurance industry – they’ve known that asbestos was dangerous for donkey’s years.”
Unsurprisingly, media reports have linked the apparently devastating costs of asbestos claims, as detailed by the actuarial profession, with the pleural plaques case. Ettinger is concerned at the timing of the new report, and also how it seems to be influencing debate even at the highest levels. He reports that the judge in the pleural plaques case mentioned ‘compensation culture’ three times in his opening statements. “Here you have a judge talking about [the compensation culture] and that isn’t the evidence before him,” he says. “But obviously that’s at the back of his mind, and you can only think he’s going to be influenced by it.”

Julian Lowe, actuarial director at Norwich Union, denies that the report has been released to coincide with the insurer’s challenge. He insists it is independent from the insurance industry.

It has been reckoned that these so-called ‘worried-well’ claimants account for three-quarters of all those US asbestos compensation claims that have had such a crippling impact on its economy. Certainly, Norwich Union is alarmed about the effect of such claims this side of the Atlantic. “Of course, if the present claims trends and patterns for this condition are unchecked, there may be more and more claims for relatively large sums for asymptomatic pleural plaques, and premiums may have to rise to reflect that,” argues Dominic Clayden, the insurer’s director of technical claims.

The actuarial profession report does not sit easily with Norwich Union’s concern. Lowe reckons that such claims are only a tiny proportion of the total cost of asbestos claims. “The bulk of costs are to do with issues other than pleural plaques,” he says. “They represent five to 10 per cent of the total costs.” The issue makes only one page in his 200-page report.

That point will no doubt be overlooked by the headline costs of asbestos claims. The Lord Chancellor cited the 2002 report as a warning about how such research has it own negative impact. “Reports such as this fuel the perception of a problem,” he said. “Figures are presented without caveats. Estimates become fact and guesses become gospel.”