Aon, a leading global professional services firm providing a broad range of risk, retirement and health solutions, has identified through group risk market reviews for employers, that many are not accurately recording sickness absence. This can negatively impact insurance premiums, increase business risks for staff involved in the process and impact claim payouts. The issue may become greater as the group risk market continues to grow and because the introduction of the Insurance Act 2015 could have serious implications for company decision-makers and administration staff if relevant facts are not recorded.
Charles Alberts, head of health management at Aon, said:
“We are concerned that some employers are not accurately recording sickness absence. This means insurers may not be receiving the right information in order to accurately assess and price the risk to the business of that absence. As the group risk market continues to grow and with the advent of the Insurance Act 2015 (which became effective from August 2016), employers are advised to take stock and consider their responsibilities as policyholders. Not recording absence properly is an enormous risk for employers and may mean they are not meeting their legal obligations.”
Group risk insurers require information on who is absent, the reason for their absence, duration and additional information such as prognosis. However, Aon through its market review activity has seen that some employers either do not record their absences or have gaps in the data that they provide to insurers – for instance when absence is not consistently and accurately recorded internally.
The problem is twofold. The Insurance Act imposes a ‘duty of fair presentation’ of the relevant facts on employers, meaning a lack of robust absence recording could potentially mean failing in this duty. The Act states that the employer’s knowledge is deemed to go from the top down of an organisation, including decision-makers to staff involved in administration, so errors could be costly and potentially high profile.
On top of this, non-compliance can prompt a number of serious business risks such as pricing, disputed claims, negatively impacted premiums, forfeiting rebates, loss of claim monies or invalidating acceptance of claims.
The key risks that impact employers and employees are:
- Insurers may assume a worst-case scenario from a pricing perspective or be unwilling to quote if they are not confident in the information provided.
- Claims can be disputed for undeclared or misrepresented absentee details, potentially resulting in a shortfall in claim payout, or the insurance policy could be invalidated.
- Premiums will also be negatively impacted by poor controls over absence or a lack of proactive management, as this can increase the risk of long-term absentees and claimants.
- Certain policies have in-built financial incentives for early notification of absences to the insurer. Non-compliance can result in the employer forfeiting a premium rebate.
- Insurers need to be advised of claims within a certain period. Not notifying them in good time may result in the loss of claim monies, or even invalidate acceptance of a claim.
Charles Alberts continued:
“There are steps employers can take, including implementing an absence management policy and process that is consistently followed by all employees and line managers. Best practice is to record all absences from day one, to use a system built for this purpose, to build in triggers to flag cases that are likely to be long term or would benefit from earlier intervention, plus using a clinical case management service to support the employee and provide advice to make proactive business decisions.”
As yet, case law on this issue has not developed, but an inadequate record of absences is unlikely to be an excuse for failures in disclosure.
Charles Alberts added:
“It is advisable for employers to accurately record all absences, as well as to provide fair and consistent treatment of all cases both to improve insurance premiums and to reduce the risk of litigation. Proactively managing absence is positive for all stakeholders – the employer, the insurer, and importantly the employee.”