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Legislation, insurance and the law of unintended consequences

When it comes to unintended consequences the one I will always remember was after the Exxon Valdez Alaska oil tanker disaster in 1989.  An oil tanker bound for Long Beach, California, struck Prince William Sound’s Bligh Reef and spilled somewhere between 260,000 to 750,000 barrels of crude oil. It is considered to be one of the most devastating human-caused environmental disasters in history.

After the event many US state regulators imposed an un-limited liability on oil companies when delivering oil to the US. The oil companies are then understood to have out-sourced delivery to numerous smaller companies, potentially using poorer quality vessels, with possibly lesser servicing standards and possibly poorer quality public liability insurance.

So a well-intended piece of regulation to reduce the risk of a disaster actually ended up increasing the risk of the event happening again.

Closer to home there are a couple of regulatory changes taking place in the group risk market, aimed at helping employees, however, the fear is that the law of unintended consequences will strike again and employers will end up cutting back on risk benefits to the detriment of their employees.

The first is age-discrimination where an employer cannot force retirement. Will the employer have to offer risk benefits to people after age 70? What age will income protection claims stop at? How much would such as benefit cost and might it put employers off altogether?

The second is that reportedly employers may not be able to ask your sickness record before offering you a job, so inevitably sicker people will enter the work-force.  This could result in a higher number of claims being paid which will end up being reflected in the price.

In each case we can see that this is well-intended regulation to protect some of the weaker people in society. But could it backfire?  Higher cost of providing benefits and higher regulatory cost may lead to less risk benefits being offered for all, not just these people, if at all.

The employer may save a few pounds in the short-term but we need to consider the impact on an employee if the worst happens and the wider impact on society, if the workers are not covered as adequately as we know they should be.

Jason Hurley is Head of Sales and Marketing for RGA UK

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