Regulatory Cases and the Importance of Risk Management

We’re often asked how effective risk management can save time and money for our clients, as well as protecting them from legal action. 

As a responsible broker, we place avoidance of claims as one of our top priorities. An efficient risk management system not only helps to prevent claims, but the checks and documentation associated with effective risk management show that the defendant company have taken the adequate precautions to prevent risk. In court, that could be the difference between a claim being rejected, and a gross negligence manslaughter verdict.

In this article, we’ll go through some real-life examples of times when proper risk management has saved clients time and money. 

But first, here’s a brief explanation of how the Health and Safety regulation landscape currently operates.

Regulatory Intervention – Enforcement Authorities

  • HSE
  • Police
  • Environment Agency
  • Local Authority
  • Other

– Civil Aviation Authority
– Inland Revenue
– HMRC
– Office of Fair Trading/Trading Standards
– Fire Authorities

HSE

  • Mission statement: “The prevention of work-related death, injury and ill-health”.
  • Business Plan for 2017-18 is to reduce government funding and therefore ensure “value for money for the taxpayer”.
  • This means that the HSE is now mostly self-funded, and therefore it is in their interest to conduct investigations and raise actions against companies/individuals.
  • The cost implications are as follows:

– Fees For Intervention (FFI): These are HSE charges for investigating breaches and taking action to put them right.
– Proactive Inspections: These are inspections that lead to a Notice of Enforcement (NoC), prohibition or improvement notices for a material breach
– HSE hourly rates for the above are £129 per hour (from April 2018)
– The average fee is £700 – but several each month are over £10,000.
– HSE income from investigations was £10.1m in 2014/15. It was £14.7m in 2015/16. It will almost certainly have increased again when the next set of figures are released.

  • The trend is for increased Notices of Prohibition/Improvement to be served, and prosecutions are increasingly dramatically. As an example, since the amendments to the sentencing guidelines, there has been a 1000% increase in prosecutions against individuals (directors, managers), along with the corresponding action against the corporate entity.

Regulatory Authorities – Priority Cases

  • Fatalities
  • Inquests

-These will have an impact due to Regulation 28 reports submitted by the coroner. A Regulation 28 report is completed when the coroner is obliged to offer a perspective on a case wherein he has a legal duty to prevent further deaths. This becomes a public document and the client has 56 days in which to put right any issues raised by the coroner.

  • Catastrophic injury
  • All sectors, not just traditional high-risk industries
  • Individual offences
  • Evidence of a poor Health & Safety record, ie:

– Previous prohibition notices
– Previous HSE or local authority investigations

  • Poor culture
  • Lack of investment in risk management

The key point is that the HSE does not have to have been alerted to a serious incident for a decision to be made to investigate a company. Multiple RIDDOR report submissions could indicate to the HSE that a client has a poor Health and Safety and therefore an investigation is warranted.

Once on site, the HSE can investigate anything they so desire and are not obliged to limit themselves to the incident(s) that gave rise to their initial approach.

Practical Consideration and Risk Management

It has been ascertained that there is an increased correlation between a proactive approach to risk management and:

  • Avoiding prosecutions
  • Reduction in penalties and costs
  • Reduction in likelihood of individual culpability

The areas which would need to be assessed post-incident as part of a risk management review would be:

  • Health and Safety policy
  • Training
  • PPE
  • Risk assessments
  • Safe systems of work/permits to work
  • Contractors and visitors
  • Workplace and workplace equipment
  • Monitoring
  • Culture

Where evidence exists that individuals have ignored the application of effective measures, they are at a heightened risk of formal action against themselves as well as the company.

Cost Impact – Example 1

  • The employee of a client suffered a head injury after falling from a gantry.
  • The client immediately brought about swift and far-reaching improvements to their Risk Management procedures, before the HSE could issue any Improvement Notice. As such, by the time that the HSE had issued an Improvement Notice, the client had not only already completed the work required, but had gone even further in strengthening all areas of their Risk Management.
  • The potential fine in this matter was estimated to be £500k.
  • The cost of the post-incident actions taken by the client was in the region of £40k.
  • In the end, the HSE chose not to prosecute the client in light of their proactive approach to Health and Safety post-incident.
  • This meant that the client saved approximately £440k due to the action that they took, not including the potential legal costs that would have accrued during the prosecution process.

Cost Impact – Example 2

  • An employee suffered a serious injury at the client’s theme park.
  • The client accepted a breach and took swift and far-reaching steps to improve their Risk Management.
  • The court chose to fine the client regardless, as there had been six previous Improvement Notices issued against the theme park.
  • The court initially set the fine at £120k.
  • However, the court then reviewed mitigating factors in respect of the value of the fine, and concluded that:

– The company operated in a modest manner financially and the directors did not take significant salaries. As such the fine was reduced by 20%.
– The company employed a large number of employees in the local area, and an exorbitant fine would have put such employment at risk and therefore negatively impacted the local area’s economy.
– The company had done a large amount of work with community groups and charities to allow disabled children to attend the park. As such, the fine was reduced by a further 10%.
– Finally, the swift acceptance of responsibility reduced the fine by one-third, mean that the final total came to £57,600.
– This reduction of over 50% was entirely due to the pro-active approach taken by the client and the presentation of this approach to the HSE and the court.

if you’d like to speak to Romero Insurance Brokers for more information on the importance of effective risk management and health and safety protocol, call us today or send us a message via the contact form at the top of this page.

Motor Theft Alerts: Stay Vigilant

A recent spate of specific motor theft M.Os acts as a timely reminder to stay vigilant.

A sharp rise in motor theft continues, with insurers paying out record numbers on claims. According to the ABI, the first 9 months of 2018 saw pay outs totalling £271,000,000.

A major contributing factor is the speed at which criminals are finding security holes in new technology. Keyless technology, for instance, has allowed the theft of cars without any kind of break in or struggle.

In this article, we’ll look at some of the recent motor theft M.Os and how you can go about preventing them.

Airport Parking Scam

Airport parking by nature involves a huge amount of trust. This is especially true if you’re handing over the keys to your vehicle before boarding the plane.

You’re trusting the parking operator to only enter or move your vehicle when it’s absolutely appropriate, and to not move or disturb any of your belongings.

Recently, we’ve heard of a number of cases where cars have been stolen or have mysteriously disappeared whilst booked into airport parking. On some of these occasions, the thefts haven’t even been reported until the owner returns to collect their vehicle.

One such example involved an individual booking secure parking for Manchester Airport. They paid £49.99 for the promise of parking covered by CCTV.

The parking appeared official; a confirmation email was sent and the company sent a uniformed member of staff to pick the car up from a rendezvous point outside the airport. They also had what appeared to be official documentation.

When the vehicle owner arrived back in the UK, they telephoned the number given on the official document, but there was no reply. When they finally made contact with the customer, they were told that the vehicle had never been received and that the owner should contact the police instead.

However, the parking services company then contacted the insured to correct themselves; the car had been lodged and subsequently stolen. They wouldn’t elaborate on how, and this was their final communication.

Investigations revealed that the alleged “secure compound” is a farmer’s field in Cheshire.

The moral of this particular story is to do through research. Contact the airport to validate any parking agency and make sure that you can find evidence that the company are who they say they are. 

Motor Home Thefts

A couple of months ago, we wrote about the increase in keyless car thefts. Recently, this has manifested in the theft of multiple Ford Motorhomes, usually after motocross race meets. The motorhomes aren’t broken into; criminals are using key-cloning devices to hack into the on-board computer and connect a new key from a blank.

The motorhomes are usually spotted for sale online within a few days.

The best way to prevent this type of theft is to purchase additional security. Key programming can take as little as 14 seconds, so you can’t rely on being there to stop the thief every time. Fitting a lock to your diagnostic port or a steering wheel clamp are two preventative measures.

Hire Vehicle Thefts

Hire vehicle thefts aren’t new, but thieves are changing their M.O and means of disposal/distribution. Lancashire and West Yorkshire has been a hotspot in recent months.

Offenders are hiring a vehicle in one county before removing the tracking device and reporting it stolen in another county. This means more than one police force are become involved, making the investigation trickier. The thieves also wait a number of days before reporting the ‘theft’.

Intelligence suggests that perpetrators come from the same gang.

Proper and thorough background checks are the best form of crime prevention.

Our advice for all drivers

Thorough understanding and proper precaution are the keys to preventing vehicle theft.

The airport parking scam and hire vehicle thefts call for background research to verify the identity and validity of the person you’re dealing with.

When it comes to key cloning, re-programming and keyless theft, it pays to understand your vehicle’s security system. For instance, can you turn the key signal off? Or can it be masked with a Faraday pouch?

Remember, stay vigilant and ensure that any theft or suspicious behaviour is reported to the police immediately.

Romero Claims Service Nominated for 2 National Awards

Romero Insurance Brokers have been shortlisted in the Commercial Broker of the Year and Broker of the Year catergories.  Our ongoing investment into our claims service and the team behind it has once again been acknowledged by the Insurance Industry.
Managing Director Simon Mabb commented “Innovative ideas to provide the best assistance our clients when they need it most sets us apart from the competition.  Whilst many other brokers are selling out to the large internationals and consolidators who concentrate on the bottom line, we are focusing all our efforts on providing a market leading service.
Our claims team work tirelessly on behalf of our clients and we are thrilled to be recognised as a true market leader.”
The result will be announced in special ceremony on London in July.

Cyber Security

Romero Insurance Brokers have continued to invest in new staff to enhance our proposition to our customers with 12 new employees joining the business in 2017 taking our head count to well over 150.  With our sustained growth and the continued consolidation in the insurance market we are pleased to report that Romero Group now stands in the Top 10 UK Independent Insurance Brokers.  We enjoy strong relationships and multi-million pound accounts with all the major insurers who look to actively support our organic growth model.
Our feature article in this newsletter will focus on the increasing risk of
Cyber attacks and the solutions we can provide to eliminate/manage Cyber risks.
Cyber Security
As our reliance on technology becomes ever-greater, the potential impact of Cyber related events continues to grow.
In 2017, 46% of all UK businesses identified at least one Cyber security breach or attack in the last 12 months.  This figures rises to 66% for medium sized companies and 68% for large companies.
Average cost of Cyber breaches in the past 12 months:
Micro Business – £1,380
Medium Business – £3,070
Large Business – £19,600
Businesses that had suffered a Cyber attack:
23% had a temporary loss of files
10% had a permanent loss or change of files/data
20% had software/systems corrupted
Managing risk and protecting businesses from the economic risk of Cyber attacks is where insurance can play an important part in protecting your business.  Some insurers now provide worthwhile extensions to their commercial combined policies or a specialist stand-alone Cyber policy may provide wider protection.
It is essential you address this increasing area of risk and Romero can provide a fully confidential review of your arrangements to ensure your business has the right protection.

Cost of Hurricane Irma could reach $300 Billion

As quoted in The Guardian, costs continue to escalate, and with Hurricane Maria hitting British territories in the Caribbean, insurers are facing record claim pay outs this year.
Romero Managing Director Simon Mabb commented:
“The devastation caused by the recent Hurricanes in the Caribbean and America has already started to affect the insurance market in the UK, with some insurers already withdrawing from certain classes of business and breaking long term agreements to impose premium increases in line with market trends.
 
Reinsurance costs will no doubt increase from January 2018, which will have a significant impact on commercial insurance premiums from 2018.
 
It will be prudent for businesses to obtain an alternative quotation in respect of their insurance arrangements to ensure they minimise the impact of any increases.”
Romero Insurance Brokers can provide confidential review of your insurance programme enabling you to benchmark your arrangements without disturbing your relationship with your current insurance provider.  This will ensure you obtain the best possible terms for your business and protect against further increases.

20 Years of Treating Customers Exceptionally!

Think back 20 years to 1997…  Hong Kong transferred to Chinese rule, Celine Dion topped the album chart, Pete Sampras won Wimbledon and Romero Insurance Brokers was born.
Justin Romero-Trigo had a vision to create one of the leading insurance brokers in the UK providing Insurance and Risk Management Solutions across a wide number of industry sectors.  20 years later what has been achieved?
From 2 staff in a small office in Horsforth to one of UK’s largest truly Independent Insurance Brokers now.  Employing over 150 staff working from 4 offices and handling close to £100 million in premiums annually.
Not many businesses can say they still have their first customers with them 20 years later but we have worked hard to understand our client’s needs and pride ourselves on delivering a market leading service that exceeds our client’s expectations whilst delivering the most competitive premiums.
This philosophy has served us well and we will continue to Treat our Customers Exceptionally working closely with our clients and insurer partners to ensure our next 20 years are just as successful.
The last 20 years Romero Clients have faced many different risks such as Cyber Attacks & Corporate Manslaughter.
What will we be insuring in the next 20 years?  Driverless cars, Jet Pack Flight and Fly Boards…

Romero in the final for Chartered Insurance Broker of the year!

Romero Insurance Brokers has been shortlisted for a prestigious industry award.
Selected by a judging panel that consists of eleven industry experts, Romero Insurance Brokers has made the final of the UK Broker Awards for Chartered Insurance Broker of the year.
Managing Director Simon Mabb commented “We are delighted to be in the running for Chartered Broker of the year, as one of the first Brokers to achieve Chartered Status in our area, we pride ourselves on our professionalism.  Our continued growth and success is the result of hard work and doing our very best for our client’s so we are thrilled to have our efforts acknowledged.”
The winners will be announced at the UK Broker Awards Ceremony on Friday 16th September at The Brewery, London.

Romero Risk Management enhance their offering to clients!

Following the introduction of the new Sentencing Guidelines in February this year Romero Group have launched a comprehensive Risk Management Service Line to meet the needs of our clients for compliance, civil defence and brand protection.
From Cyber Risks to Claims Defensibility Studies, Romero Risk Management can deliver a full range of services to assist our clients assess and manage risk effectively.  All services are delivered by our team of qualified professionals complemented by our bespoke e-learning website www.romeroelearning.co.uk which offers flexible, cost effective training solutions.
Risk Director Jane Dronsfield commented “It has never been more expensive to offend than it is today, it is essential that all companies manage risk down to the lowest possible level.  Romero Risk Management now offer a complete range of services from full consultancy to e-learning that can tailored to our clients requirements.”
For further information please visit www.romeroriskmanagement.co.uk, email risk@romeroinsurance.co.uk or call 0113 281 8110.

Romero Director’s Service acknowledged with a Certificate of Appreciation at the Royal Aero Club Awards!

Martin Mansley has been presented with a Certificate of Appreciation by HRH Prince Andrew, Duke of York.
Martin has worked in capacity as insurance broker to the British Parachute Association (BPA) for six years and they were so impressed with Martin they followed him to Romero Sports and Leisure 3 years ago.  Due to Martin’s  expertise of Sports and Leisure Insurance Sector he has saved the BPA over £2,000,000 in premiums over the last 6 years using only quality ‘first class’ insurers.
Martin and Romero Sports & Leisure have introduced and supported a wide range of initiative’s to manage risk which has improved the safety record of the BPA substantially.
Romero Chairman Justin Romero commented “Martin is one of the leading lights in the Sports and Leisure Insurance Sector, his professionalism, innovation and sheer will to provide the best for his clients has got him where is today.  We are all proud of Martin’s achievements and I am certain he will receive many more accolades!”

IMPORTANT LEGISLATION CHANGES THAT WILL AFFECT YOUR INSURANCE ARRANGEMENTS

INSURANCE ACT 2015
In February last year the Insurance Act 2015 received Royal Assent and will become effective from August 12, 2016. The Act will change the UK’s commercial insurance law. The current regime, underpinned by the Marine Insurance Act 1906, will continue to apply to policies incepted or renewed for a period of 18 months but thereafter the 2015 Act will apply, by default, to commercial (‘non-consumer’) insurance policies.
The simple guide below has been developed by Romero Insurance Brokers to provide a concise update of what these changes will mean to you.
The Act Deals with
  • Duty of Fair presentation
  • Knowledge of the Insured & Insurer
  • Remedies for breach of duty of fair presentation
  • Warranties
  • Remedies for Fraudulent Claims
Duty of fair presentation
  • What is a ‘fair presentation’?
    Disclosure made in a manner that would be reasonably clear and accessible to a prudent insurer. Representations of facts must be ‘substantially correct’ and representations of expectations or belief must be made in good faith. The requirement that disclosure be reasonably accessible to insurers is intended to prevent the practice of ‘data dumping’ i.e. swamping insurers with data without highlighting the key aspects.
 Knowledge of Insured and Insurer
  • What disclosure needs to be made to insurers?
    An insured will need to disclose either (a) every material circumstance the insured knows or ought to know or (b) sufficient information to put a prudent insurer on notice that the insurer needs to make further enquiries for the purpose of revealing those material circumstances.
  • What are ‘material circumstances’?
    Any circumstances (including information held by or communications made to insureds) that would influence the judgment of a prudent insurer in determining whether to take the risk and, if so, on what terms. These include special or unusual facts about the risk, any particular concerns which led the insured to seek cover and ‘… anything which those concerned with the class of insurance and field of activity in question would generally understand as being something that should be dealt with in a fair presentation of the risks of the type in question’. The Law Commission’s vision in drafting the Act was that insurers, brokers and policyholder bodies should ‘work together to develop guidance and protocols setting out what a standard presentation of the risk should include in particular circumstances’. This is a challenge for the risk community to address over the next 8 months.
  • If only material circumstances that are known or ought to be known by the insured have to be disclosed, whose knowledge at the insured is relevant?
    To be disclosable, material circumstances either have to be known or ought to be known by:
    a) the insured’s senior management, i.e. individuals who play significant roles in the making of decisions about how the insured’s activities are to be managed or organised; or
    b) individuals who participate on behalf of the insured in the process of procuring the insurance (including brokers and other agents).
Remedies for breach of duty of fair presentation
  • Can clients/policyholders adopt a ‘don’t ask don’t tell’ approach to internal investigations of material circumstances ahead of placement?
    No. Material circumstances which are ‘suspected’, or which would have been known if the relevant individual had not deliberately refrained from confirming them or enquiring about them, will have to be disclosed.
  • How extensive a search must insureds make for material circumstances?
    Insureds have to make a ‘reasonable search’ of the information available to them, including information held by their agents or others who will be covered by the insurance. Any material circumstances that a ‘reasonable search’ would have revealed are disclosable.
  • What if the duty of fair presentation is breached?
    a) If the breach was either deliberate or reckless, the insurer can avoid the contract (i.e. treat the contract as if it never existed), keep the premium and refuse to pay all claims.
    b) If the breach was not deliberate or reckless, the remedy depends on what the underwriter would have done if a fair presentation had been made. If the insurer:
    i. would not have entered the contract at all…
    …it can return the premium, avoid the contract and refuse all claims.
    ii. would have entered the contract on different terms…
    …the contract is treated as if those different terms applied.
    iii. would have charged higher premium…
    … the insurer can proportionately reduce the amount it pays on a claim.
Warranties
  • Will warranties still exist?
    Yes, but it will be harder to create them, they will be more limited in scope and the effect of a breach of warranty will be softened.
  • Why will it be harder to create a warranty?
    Clauses in proposal forms that turn an insured’s representations into warranties (so-called ‘basis of contract’ clauses) will no longer have any effect. Proposal forms and wordings will need to be revised to take this into account.
  • Why will they be more limited in scope?
    Breaches of warranty that are irrelevant to the loss that occurs will no longer discharge insurers from liability – one of the key issues insureds have with the existing law. If the insured can show that failure to comply with any term in the contract (including warranties) could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred, insurers will no longer be able to rely on the breach to exclude, limit or discharge its liability.
  • What are the changes to the remedy for breach of warranty?
    A breach of warranty will discharge the insurer from liability for losses occurring, or attributable to something happening, after the breach occurs. It will not discharge the insurer from liability for anything that happens before the breach – or after the breach has been remedied.
  • So an insured can now remedy a breach of warranty?
    Yes. If the breach of warranty is remedied before the loss occurs, the insurer cannot rely on it.
  • What counts as ‘remedying’ the breach?
    If the warranty requires something to be done by a certain time, or a condition to be fulfilled, or something to be the case (e.g. installing a certain sprinkler system in case of fire) then a breach of that warranty is ‘remedied’ if the risk to which the warranty relates becomes essentially the same as the risk originally contemplated by the parties (e.g. installing a comparable sprinkler system). For other warranties, a breach is deemed to be remedied simply if the insured ceases to be in breach of the warranty.
Remedies for fraudulent claims
  • What will change?
    Insurers will be entitled (on notice) to treat the contract as having been terminated from the date of the fraudulent act and need not return any premiums paid under the contract. Of course, insurers will still not be liable for any fraudulent claim and will be able to recover any payments made to the insured in respect of fraudulent claims.
  • What about valid claims made before the fraud?
    These will be unaffected – which clarifies some potential confusion arising from the case law.
Contracting Out
For non-consumer insurance, the provisions of the Act are intended to provide default rules. However, parties are free to agree contract terms which are less favourable than those in the Act, provided that the insurer satisfies two transparency requirements. This ability to contract out is not true of consumer insurance contracts. An insurer will not be able to use a contractual term to put a consumer in a worse position that they would be in under the terms of the Act.
  • What are the transparency requirements for contracting out?
Where insurers do intend to opt out (and hence include a “disadvantages term” they must take sufficient steps:
  1. To draw it to the insured’s attention before the contract is entered into, and
  2. The disadvantages term must be “clear and unambiguous as to its effect”.
What is sufficient to meet the above two requirements will depend on the characteristics of the insured and the circumstances of the transaction (where and how is the contract made).
  • What cannot be contracted out?
The contracting-out provisions will not apply to settlement agreements or the prohibition in respect of basis of the contract clauses.
In many respects the new Act codifies existing case law rather than effecting wholesale revisions to the status quo, although some changes – such as the new law on warranties – will be significant. The Act will, however, take time to bed in and there are bound to be test cases in years to come about what some of the new provisions mean.
For further information please speak to your usual Romero contact or for new customers, please contact Richard Nicholson or Robin Kinkead on 0113 281 8110.