Personal Grievance Protection Insurance
Since businesses recommenced work after the COVID-19 lockdown we have seen a substantial increase in the number of Personal Grievance claims being raised against employers, many of these being related to events that have occurred as a result of COVID-19 i.e. restructures or wage arrears claims, but also, a significant number in relation to other employment matters such as disciplinary or performance processes.
These grievances are generally related to an alleged deficiency in an employer’s process and while some of these grievances may have substance, a number of grievances are a result of an increase in activity from Employee Advocacy organisations seeking to generate fees to recoup their own loses. Many of these grievances lack substance, but nevertheless the employer is still required to treat these as genuine and provide full responses, and if necessary, attend mediation and/or the Employment Relations Authority.
Prior to COVID occurring, the industry saw a significant uptake of employers taking out Personal Grievance Insurance to protect themselves against the increasing number of Personal Grievance claims that we have seen occurring over the last few years. For those employers that took this insurance out prior to COVID, their annual premiums were realistic, and the excess costs were generally around $2,500 per claim. Insurance companies spoken to by us, however, indicate that the pay-out value of Personal Grievance claims was approximately $1.01 for every $1 of fees taken in, and a number of insurance companies therefore offered this Personal Grievance protection. However, since COVID-19, with a substantial increase in Personal Grievance claims, many of which may be deemed questionable at best, they have seen a significant increase in the excess being required to be paid for each claim. In many cases, this has raised from $2,500 to $5,000 per claim.
With this increase, insurance companies have also seen the cost of payments increase significantly to the point where insurers are now advising us that they have been paying out up to a $1.60 per claim on every dollar taken in, in premiums. This has largely made Personal Grievance Protection Insurance unaffordable, and as such most insurance companies will not now offer this protection as a cover to organisations. For those that currently hold a Personal Grievance policy, at the time of your next renewal you may find that the premiums have increased so significantly that it is now unaffordable to continue.
Some insurers have provided a replacement policy; however, this only covers the employer’s legal costs associated with any Personal Grievance and does not include the higher compensation or loss of wages costs that were aligned to previous policies. Therefore, the value of these new model policies is extremely low, particularly where representation costs may only be $2-3,000 higher than the excess to be paid on each claim.
When we have enquired regarding the increased costs associated with Personal Grievance claims, we have been advised that the settlement costs negotiated by the appointed parties for the insurer have also increased significantly. This being with respect to the compensation payable to the employee and also the legal representation costs.
Therefore, moving forward it is unlikely that organisations will be able to secure an effective and affordable Personal Grievance Insurance Policy for some time. The most economical way forward is therefore for employers to ensure that all of their employment decisions are based on sound process and clear justification with the support of up to date, legally compliant, tailored employment documentation, then when a Personal Grievance is submitted, to ensure that this is handled in an efficient manner. This will ensure that you are prepared and equipped to avoid the excessive payments that have recently been seen.
At Russell Drake Consulting Ltd, we provide representation on all aspects of Personal Grievances for employers and are happy to discuss with you any grievance matters that you may have and to help you resolve these in the most cost-effective manner.