An accident on site has many ramifications, particularly when someone gets injured. On top of the impact to your worker, there are issues the business must confront, including investigation costs, loss of productivity and potential fines and penalties.
A significant hidden cost can also come to the fore years from now – with some recovery actions by workers’ compensation insurers lodged up to three years after payments to the worker have ceased.
The subcontractor-based model adopted by the construction sector places the responsibility on the Head Contractor for what happens on a site. This includes the health and safety of not only their own employees but, to a degree, their subcontractors.
‘Worker-to-worker’ claims are becoming a significant contributing factor under General Liability covers. These are claims where a subcontractor or labour hire employee makes a claim against the Head Contractor on that person’s responsibility for providing a safe workplace. They can be made either directly or via a recovery action brought by their workers’ compensation insurer.
So why have these claims become more prevalent? Each of the state-run workers’ compensation schemes are running at significant losses with NSW and Victoria in the red to the tune of billions of dollars.
| State | Total comprehensive income 2019/20 | Average industry rate fluctuation from 2020/21 to 2021/22 |
|---|---|---|
| New South Wales | - $1.9b1 | + 2.9%2 |
| Victoria | - $3b3 | Nil |
| Queensland | - $445m4 | Nil |
| South Australia | - $303m5 | + 3.0%6 |
An avenue for workers’ compensation insurers to make their own schemes more profitable is to pursue any third-party recoveries that exist. As such, in the government-run states that include Victoria, Queensland and NSW, dedicated teams within workers’ compensation insurers are actively pursuing recovery actions against liability insurers.
Worker-to-worker claims now represent up to 70% of most Australian liability insurer claims costs within their construction portfolio. The average claim costs between $350,000 and $450,000.
Liability insurers face the significant challenge that recovery actions by workers’ compensation insurers often occur years after the initial injury. The Statute of Limitations to bring a recovery claim can be up to three years post cessation of payments to the worker.
Where such a time lapse occurs, there is often no record or investigation report of the initial incident, or workers who were witness to the incident have moved on. Investigation and subsequent defense of the claim can be very difficult. Furthermore, the duty of care of the entity controlling the site where the subcontractor is working is akin to that of an employer to an employee, so it is difficult to defend against, even if there is no clear negligent act.
What does this mean for construction contractors?
In short, this situation means higher premiums and higher deductibles.
Australian liability insurers are looking to correct their portfolio’s loss ratio which has been running at above 100% for several years. They are focusing on the driving forces behind their portfolio performance and worker-to-worker claims are squarely in their sights.
As a result, insureds that engage sub-contractors or labour hire workers on their sites are experiencing major increases in their liability premiums and policy excess. While worker-to-worker claims are not exclusive to the sector, the construction industry is significantly exposed due to the sub-contracting model.
As such, contractor clients are seeing premium increases in the region of 25-50% and worker-to-worker excesses of $100,000 to $250,000.
Can your business mitigate these market dynamics?
Willis Towers Watson can help ensure that you have robust onsite Health, Safety & Environment and incident reporting procedures to best position your business in the eyes of insurers, minimise onsite incidents occurring, and to defend any recovery action that may arise. We can also ensure that your contracting framework is optimised to provide the greatest degree of commercial protection.
1 https://www.icare.nsw.gov.au/employers/premiums/premium-updates#gref
2 Page 61, WorkSafe Victoria Annual Report 2019-2020
3 Page 48, WorkCover Queensland Annual Report 2019-2020
4 Page 8, Return to Work SA Annual Report 2019-2020
5 https://www.rtwsa.com/about-us/news-room/articles/average-premium-rate-increase
