Labour hire practices grey zone for claims

IN Partnership with

Does labour hire fall under workers’ compensation or public liability? It depends … and until a longer-term solution is implemented, the area will remain problematic for insurers and brokers

CHANGING EMPLOYMENT practices in a tight labour market may have unintended repercussions on claims in related areas of insurance, and brokers need to be aware of the implications. Public and Products Liability (PPL) specialist Berkley Insurance Australia (BIA) has observed an industry-wide increase in both the number and size of claims in the area as well as in workers’ compensation. Chief executive Tony Wheatley puts part of the emerging trend down to an under-the-radar labour hire practice. “The expansion of the short-term labour hire structure of businesses means there are more non-employee contractors in workplaces and on site [which] increases the potential for liability claims to occur,” says Wheatley.

Berkley Insurance Australia (BIA) is a world-class general insurance provider offering customised solutions across a range of specialist product lines. Our motto is local teams supporting local brokers, ensuring fast responses to quote requests, risk submissions and new claims. Our underwriters specialise in their product lines and work together with brokers to provide solutions to cover their clients against a range of risks. BIA was the winner of the NIBA General Insurer of the Year in 2020, Insurer of the Year for Insurance Advisernet 2022, and Insurer of the Year for the Insurance Business Brokers at the Insurers Awards in 2021–2023.

Find out more

Typical size of excess on labour hire claims

$250,000

“Some brokers or insureds don’t fully recognise internal labour hire as a labour hire arrangement and therefore don’t disclose it, which can cause issues at claim time”

Matthew McPhee, Berkley Insurance Australia

Claims by labour hire employees against host employers tend to be larger than other PPL claims and reported later than the norm for PPL. Labour hire claims “continue to be of increased frequency and severity in PPL”, says BIA national underwriting manager Matthew McPhee. According to the Australian Bureau of Statistics, the share of all employed people working in labour supply services was 2.3% as of June 2023 – a level that has been steady for over 12 consecutive months but that may not include so-called “internal” labour hires, in which companies within a larger corporate group are incorporated to provide labour to another company within the structure.

“Internal labour hire is where the employees of one insured entity perform work for another insured entity. PPL policies generally have a cross-liability clause, which means the PPL policy will respond to a bodily injury to an employee of one insured whilst that employee is working for another insured,” says McPhee. The problems sometimes arise around the disclosure of labour hire. While brokers are in the practice of disclosing external labour hire, the requirements around internal are not well understood. “From an exposure perspective there is no difference between ‘internal’ labour hire and ‘external’ labour hire. Some brokers or

insureds don't fully recognise internal labour hire as a labour hire arrangement and therefore don't disclose it, which can cause issues at claim time,” says McPhee. BIA has also seen a rise in workers’ compensation insurers attempting to recover funds from commercial PPL insurers and believes the two phenomena are different sides of the same coin as workers’ compensation insurers also see an increase in adverse claims related to internal labour hires. “There is a misunderstanding that internal labour hires will be covered under workers’ comp, and whilst this is true for the entity that actually employs them, any other related entity can still be held responsible for injury to someone at their workplace resulting in a general liability claim,” says Wheatley. Public liability relates to members of the public or visitors, and workers' compensation relates to a company’s own employees or contractors – but for modern employment practices, there are decidedly more grey areas than a few years ago.

Various classes of insurance are seeing premiums rise in tandem with inflationary effects, and this area is no exception. Finity analysis of Australian Prudential Regulation Authority (APRA) data puts PPL premium increases for FY22 around 10%, with the increase for workers’ compensation at over 20%. Increases of around these levels or higher could be on the cards for companies using labour supply services. “Premium increases are being applied to any business using labour hire. This is creating affordability challenges for small-to-medium businesses,” says McPhee.

“In a perfect world, these claims would all remain in the workers’ compensation system, which has the focus of rehabilitation and returning people to meaningful employment”

Tony Wheatley, Berkley Insurance Australia

Talent search or employee concept search using a magnifying glass. Labor hire practices concept.

More insurers excluding labour hire

Higher premiums likely

Published 06 Nov 2023

$25,000

Lower risk exposure activities

Higher risk exposure activities

Source: Berkley Insurance Australia

An introduction to bindIT

Source: Berkley Insurance Australia

bindIT is BIA’s online broker platform and now offers public and products liability (PPL), providing brokers with

easier access to crucial insurance policies for their clients and supporting simplified and innovative policy management. bindIT can automate PPL limits up to $20m, while also offering continuous access to expert local underwriters, solidifying its capability to ensure expansive coverage for diverse risk exposures.

The lack of understanding among both brokers and their clients makes handling claims for internal labour hire very difficult, especially if the insured incorrectly believed the injured worker would be covered by their workers’ compensation insurance. This difficultly is exacerbated by the fact that labour hire claims are generally reported later than other PPL claims, making them significantly more difficult to investigate and defend. “These claims are reported on average two years later than standard PPL claims,” says McPhee. One consequence of such problems is more insurers deciding

to avoid the hassle involved altogether by excluding claims arising from labour hire. “Many insurers are now moving to exclude all labour hire claims unless the labour hire is specifically disclosed before the policy commences. This means that if labour hire [either internal or external] is not disclosed then it could be excluded,” says McPhee. BIA is advising brokers to check with clients about such employment arrangements as they seek to bolster the number of employees in a tight market for talent. “Brokers should be discussing internal labour hire arrangements with their clients to support disclosure and cover discussions with the insurer,” he says.

At a time when financial stress is increasing at SMEs, higher premiums are likely to add further pressure to find ways to economise. “In addition to the higher premiums, larger excesses are applied, leaving SMEs to fund a large excess some years after the event.” The situation around labour hire and related insurance is a difficult one that may even require new legislation to correct the bleeding of what should be workers’ compensation claims into other areas such as PPL. It is a classic case of rules and practices designed to protect insureds not keeping up with the ever-increasing pace of social change, and commoditisation and portability of labour. “In a perfect world, these claims would all remain in the workers’ compensation system, which has the focus of rehabilitation and returning people to meaningful employment,” says Wheatley. While any such regulation might take a while to filter through the system, the end result would be fairer outcomes for both insurers and insureds. “The initial cost of workers’ compensation may increase, but this would be offset by reductions in the cost of liability insurance, and overall should lead to better and more focused outcomes for people injured in workplace accidents,” says Wheatley.

RSS

Sitemap

About us

Conditions of Use

Terms & conditions

People

Specialty

Best in Insurance

Resources

Risk Management

News

RSS

Sitemap

About us

Conditions of Use

Terms & conditions

People

Specialty

Best in Insurance

Resources

Risk Management

News

RSS

Sitemap

About us

Conditions of Use

Terms & conditions

People

Specialty

Best in Insurance

Resources

Risk Management

News