Risk and the Compensation Culture

Tony Blair spoke about better regulation, risk and the compensation culture this week. He gave a speech on Living with Risk at an event organised by the Institute for Public Policy Research and the Association of British Insurers. There's a lot in this speech, including a theme that worry about liability has got out of hand:

something is seriously awry when teachers feel unable to take children on school trips, for fear of being sued; when the Financial Services Authority that was established to provide clear guidelines and rules for the financial services sector and to protect the consumer against the fraudulent, is seen as hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone; when pensions protection inflates dramatically the cost of selling pensions to middle-income people; where health and safety rules across a range of areas is taken to extremes. Europe has done itself more damage through what is perceived as unnecessary interference than all the pamphlets by Eurosceptics could ever do

Blair recognises that much of the talk about the “compensation culture” may be just that, and that the risks of liability may be much less than people think, but he also acknowledges that public authorities sometimes respond in weird ways to the thought of the risk of liability.

Then there is a theme about risk. Blair doesn't want regulation to eliminate risk (if it were possible):

A natural but wrong response is to retreat in the face of this change. To regulate to eliminate risk. To restrict rather than enable. But we pay a price if we react like this. We lose out in business to India and China, who are prepared to accept the risks. We are unable to exploit our scientific discoveries. We seek protection from risks that are exaggerated or even imagined. We allow the conspiracy theorists to dictate the argument without a basis in fact.

So Blair wants the British people to be subject to the same levels of risk as if they were living in India or China?

There are to be a number of new initiatives including the Arculus suggestion of a “one in-one out” approach to regulation – every time a new rule is introduced an old one is eliminated and a new Compensation Bill to regulate claims farmers and (re)define negligence. And the media will be nobbled:

The media have a responsibility. MMR is one example. The present debate on mobile phones is another. We only narrowly avoided massive expenditure on SARS.

We need to involve the media in a better dialogue about risk. To that end, I have asked John Hutton to invite newspaper and broadcast editors to discuss with the Chief Medical Officer and the Government's Chief Scientist the best and most appropriate forum for ensuring that risk is communicated effectively so that the maximum information can be put into the public domain with the minimum of unnecessary alarm.

What the Government wants is as follows:

We should understand the nature of the decisions we take together, have a mature, reasoned debate between government, experts and people; a conversation between adults taking responsibility for the risks they face.

Sort of like the position with the decision to invade Iraq?

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4 Responses to Risk and the Compensation Culture

  1. bigd504 says:

    ‘when the Financial Services Authority that was established to provide clear guidelines and rules for the financial services sector and to protect the consumer against the fraudulent, is seen as hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone; when pensions protection inflates dramatically the cost of selling pensions to middle-income people; where health and safety rules across a range of areas is taken to extremes.’

    Has Mr Blair ever seen cases of corporate/govermental wrongdoing, chicanery or malfesence in the UK or are these things just limited to the US? The good guys do suffer when the bad act their way and the public gets shafted at the same time. If the world & all it people were perfect, there would be no need for regulations, rules & laws but since we are human and subject to error… I’ll let you fill in the blanks. The edges are pushed by both sides-the regulated & the regulators but it due to the nature of capitalism in pursuing profit at (most) any cost. Does he remember his economic history-specifically the Industrial Revolution or the Victorian age or the era of US trusts/monopolies? THere are reasons for regulation & the insurers know it.

  2. Caroline Bradley says:

    The UK does have financial/corporate scandals, and Blair has seen some of these. For example, the UK’s Financial Services Authority has been dealing with the aftermath of a huge pensions mis-selling scandal for years now. This scandal occurred when a previous UK Government encouraged people to invest their retirement funds in personal pensions (by opting out of state and company-based plans) and financial firms advised people to invest in personal pensions in circumstances where this was not the right decision for them or financial firms advised people to invest their pension money in investments that did not suit their risk tolerances. This whole debacle is instructive for the social security privatisation plan in the US. The UK’s Pensions Commission said last year:

    the cost of advice, and of regulating to ensure that it is good advice, in itself significantly reduces the return on saving, particularly for low earners. Reductions in Yield arising from providers’ charges can absorb 20-30% of an individual’s pension saving, even though they have fallen to a level where provision to lower income groups is unprofitable. This poses a fundamental question: in principle can a voluntary market for pensions work for low income, low premium customers?

  3. Jay LaMont says:

    Is the full text of the Blair speech available anywhere online?

    Thank,
    JL

  4. The link in the first line of the post is to the speech.

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