ELTO: Not just another regulation. How to use it to benefit both you and your clients
25 JANUARY 2019
BY JANE CASEY
The Employer’s Liability (Compulsory Insurance Act 1969) requires that most businesses must hold Employer’s Liability Insurance.
The minimum limit of indemnity required by these regulations is £5 million and there is a daily fine of £2,500 for non-compliance.
What is ELTO?
New regulations were published by the Financial Conduct Authority (FCA) which can be found within ‘Insurance: Conduct of Business Sourcebook’[i] known as employer’s liability Insurance: Disclosure by Insurers Instrument (ELIDII)[ii] (ICOBS 8.4), detailing the reporting obligations placed on firms writing employer’s liability insurance. This can be done through an employer’s liability register (ELR) to be displayed on the firm’s own website, or as is more often the case, to the Employer’s Liability Tracing Office (ELTO).
The key purpose of this database is to centralise data to enable employees to trace their employer’s insurer, in the event they need to make a claim for illness or injury arising during the course of their employment. For this reason, it is crucial insurers and intermediaries upload this information in accordance with ICOBS, taking extra care to ensure the information is correctly collated when written under a delegated authority.
The accuracy of the information on the database continues to improve with overall search success increasing from 90.9% to 92.3% between 2016 and 2017[iii]. The issues outlined in this article must be solved to further improve this rate, which will be possible only if insurers invest time into understanding the regulations and improving their data collection procedures.
What does this mean for insurers (including Lloyd’s syndicates) and intermediaries?
The regulations stipulate insurers (including Lloyd’s syndicates) and intermediaries must provide the following information to ELTO within three months:
New / old policies which have been claimed upon on or after 1st April 2011
New / renewed employer’s liability policies from 1st April 2011
It is crucial insurers / intermediaries gather this information from clients and have the appropriate processes in place to report these to ELTO within the stipulated time frames. Firms, including Lloyd’s syndicates, that write employer’s liability business are required to make an annual submission to the FCA of both a director’s certificate and accompanying independent audit report. These attest to both the completeness and accuracy of the ELR and compliance with FCA Insurance: Conduct of Business Sourcebook (ICOBS) 8.4, as of 1 April.
The audit report produced will provide the external auditor’s opinion on whether the firm is materially compliant with the ICOBS Handbook requirements. The auditor will arrive at this decision based on an assessment of the control environment as well as substantive testing. The FCA stresses the importance of adhering to this regulation by setting the benchmark for material compliance. At least 99% of the policies required to be reflected on the Employers’ Liability Database (ELD) must be fully accurate and correctly reproducing underlying information, to enable a successful claimant search.
What policy information must be supplied in order to comply with ICOBS 8.4?
The details of the information to be supplied can be found in the ELTO user guide which is supplied to members. Each insurer must remember to collect from clients details of any subsidiaries, as well as Employer Reference Numbers (ERN). This is a reference number allocated to each organisation operating a PAYE scheme and supplied to their employees for income tax and national insurance contributions.
What are the common issues that arise when trying to collect this information?
The main issue that many insurers face is a lack of knowledge of the regulations. Many insurers do not have teams dedicated specifically to the processing of data for ELTO. It is often a task delegated to teams that lack adequate training on the data collection and processing requirements associated with the regulation, which therefore may be unable to identify any gaps and anomalies. Insurers are not making clear requests for information to their clients – therefore they often receive incomplete data. If the insurer does not clearly state, for example, that all details of subsidiary companies must be reported, a client will often provide only the details of a parent company, leading to inaccurate reporting on the ELD. As a result, insurers must engage in the onerous task of contacting clients and intermediaries to collect the further information once the mistake has been realised. This may have a negative impact on the insurer’s ‘Time to Supply,’ which is the time limit within which the regulator requires the policy information be reported to the ELD; subsequently leading to a negative impact on market performance. This also defeats the purpose of the ELTO tool in its attempt to streamline the process of employees claiming against their employer.
ERN collection is mandatory – so why do many insurers struggle to obtain this information?
On the 1st April 2012, it became mandatory for insurers (including Lloyd’s syndicates) to report ERNs to the ELD, and for those reference numbers to be provided upon the purchase of employer’s liability insurance. This was introduced to reduce the lengthy process of identifying an employer’s insurer if a claim occurs after an extended period of time, as was the situation in the asbestos cases whereby claimants became ill often years after they had ceased employment. It also increases the efficiency of searches. This also has benefits to the employers themselves, as it provides proof that the legally required insurance cover was active at the time of the incident and means their insurer will pay valid claims.
There is a reluctance from some employers to provide this information as insurers fail to explain how the information will be used. Employers often view this reference as being associated with their tax affairs[iv] and, therefore, do not understand how it relates to their purchase of employer’s liability cover. It is crucial that insurers make it clear to their clients that it is used solely as a ‘unique identifier’ in order to make the system more efficient.
The other problem faced by insurers, is that employers often do not have their ERN to hand when purchasing insurance, and insurers must subsequently obtain this data at a later date. Insurers rarely have adequate procedures to obtain this information after the insurance- purchase date, and this is something the industry must focus on moving forward. Insurers need a procedure to regularly chase clients and intermediaries to ensure this data is collected and reported to the ELD, as ‘ERN capture rate’ is recorded and can negatively impact the market’s ERN compliance rate.
There is another instance in which the lack of upfront ERN provision by an employer can become problematic. If the insurer does not have the correct procedures in place to ensure the ERN is being chased, it may mistakenly be uploaded as an ‘ERN exempt’ policy. This leads to inaccuracies within the ELD.
The introduction of the ICOBs regulation has led to a number of problems for insurance firms, largely stemming from a lack of robust processes when reporting requirements were first made compulsory. To remedy this, it is vital that firms invest in training for personnel with any involvement in employer’s liability data processing and collection. Firms must also develop processes which will ensure regulatory compliance moving forward. This in turn should lead to the ELD fulfilling its purpose of benefiting insurers, intermediaries and employers.