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Subcontractor Claims Skyrocket: How Aussie Businesses Are Paying the Price

In recent years, Australian workers compensation insurers have been navigating a challenging landscape as they seek recovery for subcontractor injury claims from the Public Liability Insurance policies of the companies that hire them. This trend reflects a shifting dynamic in the management of workplace accidents, with a focus on holding hiring companies accountable for the well-being of subcontractors.

The Dynamics of Subcontractor Injury Claims

The subcontracting model has become increasingly prevalent in various industries, offering companies flexibility and cost savings. However, the rise in subcontractor injury claims has prompted workers compensation insurers to reevaluate their approach. When a subcontractor is injured on the job, questions of liability and responsibility come to the forefront. Traditionally, subcontractors carried their own insurance, and this is often still a requirement to ensure they are covered for their responsibilities, but the landscape is evolving.

Shifting Responsibility to Hiring Companies

In an effort to streamline the claims process and ensure adequate compensation for injured subcontractors, workers compensation insurers are turning to the liability insurance policies of the companies that hire these subcontractors. This shift places a greater burden on hiring companies to maintain robust liability coverage, as insurers seek to recover costs directly from them. It is extremely important to ensure that you are advising your insurance advisor that you engage sub-contractors and discuss with them what cover you have in place for injury claims arising from sub-contractors and any requirements needed to be complied with.

Worker to Worker Claims are expensive

The costs incurred, and frequency, of these claims have seen an upward trajectory, mirroring the broader trend of rising compensation amounts in personal injury cases. As the legal landscape evolves and awareness of workplace safety increases, the cost of compensating injured workers, including subcontractors, continues to grow. This has profound implications for both insurers and the companies relying on subcontracted labour.

On average insurers are seeing costs of roughly $400,000 being incurred for these types of claims – a huge increase from the $250,000 average insurers reported in 2017.

Impact on Liability Insurance Policies

Companies that utilise subcontractors are experiencing higher excesses on their liability insurance policies. The excess is the amount that the insured must pay before the insurance coverage kicks in. As workers compensation insurers seek to recover costs from hiring companies, insurers are adjusting their policies to reflect the increased risk associated with subcontractor injury claims.

It is important that you check your policy and speak with your advisor to ensure you are aware of what the applicable worker to worker excess for your liability policy is, as we are now seeing these climb significantly and are being applied to policies where they have not been applicable in the past.

Management Liability insurance is designed to provide protection to both the business and its directors or officers for claims of wrongful acts in the management of the business.

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It is important that you check your policy and speak with your advisor to ensure you are aware of what the applicable worker to worker excess for your liability policy is, as we are now seeing these climb significantly and are being applied to policies where they have not been applicable in the past.

Mitigating the Risk: Best Practices for Companies

To navigate this changing landscape and mitigate the risk of higher excesses and increased liability exposure, companies employing subcontractors should adopt several best practices:

  1. Thorough Vetting of Subcontractors:
    Prioritise the selection of subcontractors with strong safety records and adequate Business Insurance coverage.
  2. Clear Contractual Agreements:
    Ensure that contracts with subcontractors clearly define safety responsibilities, liability arrangements, and insurance requirements.
  3. Regular Safety Audits:
    Conduct regular safety audits and inspections to maintain a safe working environment for all workers, including subcontractors.
  4. Review and Update Insurance Policies: Regularly review and update liability insurance policies to ensure they provide adequate coverage for potential subcontractor injury claims.
  5. Building a Safety-First Culture: This involves leadership commitment, where the top management actively promotes safety as a core value of the organisation. Encouraging a culture where employees and subcontractors feel comfortable reporting potential hazards without fear of reprisal is essential. This proactive approach to safety can significantly reduce the likelihood of accidents and injuries.
  6. Legal and Regulatory Considerations: Companies need to stay abreast of the legal and regulatory changes in the workers’ compensation and public liability arenas. Changes in legislation can significantly impact how liability is determined and how claims are processed. 
  7. Collaboration with your Insurance Broker: Fostering a collaborative relationship with your business insurance broker is crucial. Regular meetings and discussions with insurers can provide insights into industry trends, claims processing and risk mitigation strategies. Your broker can also offer tailored advice on policy adjustments or additional coverages that may be beneficial in light of the evolving landscape of subcontractor injury claims.
The landscape of workers compensation and liability insurance in Australia is evolving as subcontractor injury claims become a focal point for insurers. Companies that rely on subcontracted labour must adapt by implementing robust safety measures and maintaining comprehensive Public Liability Insurance coverage. As the costs of these claims rise and excesses on policies increase, a proactive approach to risk management is essential for hiring companies in this ever-changing environment as it will lend you/your insurance advisor more leverage in your renewal discussions with Insurers.

Important Disclaimer – Crucial Insurance and Risk Advisors Pty Ltd ABN 93 166 630 511 . This article provides information rather than financial product or other advice. The content of this article, including any information contained on it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.

Information is current as at the date articles are written as specified within them but is subject to change. Crucial Insurance, its subsidiaries and its associates make no representation as to the accuracy or completeness of the information. All information is subject to copyright and may not be reproduced without the prior written consent of Crucial Insurance.

General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

All information above has been provided by the author.

Crucial Insurance and Risk Advisors, ABN 93 166 630 511, AFSL 451450

This article originally appeared on Crucial Insights and has been published here with permission.

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