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At the Legislative Council on Second Reading of the Employees compensation Assistance (Amendent) Bill 2002

SPEECH BY MRS FANNY LAW, JP SECRETARY FOR EDUCATION AND MANPOWER AT THE LEGISLATIVE COUNCIL ON 27 FEBRUARY 2002 ON SECOND READING OF THE EMPLOYEES COMPENSATION ASSISTANCE (AMENDMENT) BILL 2002

Madam President,

I move the second reading of the Employees Compensation Assistance (Amendment) Bill 2002.

2. The Bill seeks to introduce a package of measures to reform the Employees Compensation Assistance Scheme which provides a safety net for injured employees who cannot recover compensation or damages from their employers. The Scheme also protects employers if the insurer writing their employees' compensation (EC) insurance policies has become insolvent. Since 1996-97, the Employees Compensation Assistance Fund, which was established under the Scheme, has incurred annual deficits. The reserves built up in previous years have been depleted. The proposed amendment Bill aims to restore the long term viability of the Fund.

3. One of the principal amendments is to manage the financial exposure of the Fund by introducing a relief payment to injured employees or family members of employees who die in a work-related accident. The amount of relief payment shall not exceed the amount of award ordered by the Court for common law damages. If the Court's award is not more than $1.5 million, the sum will be paid in full in a lump sum. Otherwise, an initial payment of $1.5 million will be disbursed, followed by monthly payments of $10,000 or the earnings of the injured employee at the time of the accident, whichever is the higher, until the total amount of award is paid off. If the injured employee dies before then, his/her immediate family, including the spouse or cohabitee and children under the age of 21, will continue to receive the monthly payments.

4. This arrangement provides reasonable protection to the injured employees or their immediate family members. At the same time, it helps to reduce the financial volatility brought about by huge sums of common law awards. As a matter of principle, the Scheme, which is funded by a levy imposed on the premium of EC insurance paid by law-abiding employers, should not assume unlimited liability for the negligence of uninsured employers.

5. I would like to stress that the proposed arrangement will not affect employees' entitlements under the Employees' Compensation Ordinance (ECO). Injured employees will continue to receive full payment for their statutory entitlements.

6. The Bill also provides for the Employees Compensation Assistance Fund Board to defend claims in legal proceedings. A person who files an application for assistance under the Scheme shall be required to notify the Board when filing a writ with the Court against the employer or other parties. The Board may apply to the Court to be joined in the proceedings as a party in connection with a work-related accident. These measures, when implemented, will enable the Board to better manage the applications and to bring about earlier settlement in suitable cases.

7. The Board has in the past been required to pay interest, at a level much higher than the market rate, on the assistance that an injured employee is entitled to receive. It is inappropriate for the high "judgement rate" to be applied to the Scheme's cases, which is ex-gratia in nature. The Bill proposes that the Board should pay interest on statutory compensation only and at half of the "judgement rate" or the rate as ordered by the Court, whichever is lower. The proposed rate should still be good enough to preserve the value of the outstanding payment.

8. In response to suggestions by members of the LegCo Panel on Manpower, the Bill proposes to impose a surcharge on uninsured employers. The amount of this surcharge shall be three times the levy payable for the benefit of the Board on the premium paid as the offending employer takes out an insurance policy after the detection of the offence.

9. The Bill also contains provisions that will raise the overall levy rate imposed on the EC insurance premium from 5.3% to 6.3%. This increase in the levy rate, which has been agreed by the Labour Advisory Board, is needed to restore the long term viability of the Fund.

10. In April 2001, the HIH group of insurance companies went into provisional liquidation. Two subsidiaries of the group had been active in writing EC insurance. Under the existing provisions of the Employees Compensation Assistance Ordinance, the Scheme is liable to indemnify employers against the default of insolvent insurers. Based on the information provided by the provisional liquidators, our current estimates put the total liability for the Scheme arising from the HIH incident in the region of $350 million. The substantial liability cannot be fully covered even with the proposed one percentage point increase in the levy rate.

11. Therefore, we shall soon seek the Finance Committee's approval to provide a Government loan of $280 million to the Board. To enable the Board to repay the loan without imposing further burden on employers, we have proposed in the Bill to adjust the distribution of levy between the Board and the Occupational Deafness Compensation Board. For five years from 2002/03 to 2006/07, the levy rate for the Board will be increased from 1% to 3.1% and thereafter reduced to 2.5% on a permanent basis. During the same 5-year period, the levy rate for the Occupational Deafness Compensation Board will be lowered from 2.3% to 1.2%, and raised to 1.8% thereafter.

12. The HIH incident highlights the significant and sudden financial exposure insurer insolvency may cause. To address this issue, the Commissioner of Insurance is discussing with the insurance industry on a separate scheme to cover insurer insolvency. The present Bill includes provisions to repeal those sections of the principal ordinance relating to insurer insolvency. These provisions will not come into effect unless and until the separate scheme is in place. The Bill also makes transitional arrangements to ensure that the interests of the employers involved in the HIH incident will not be affected.

13. Madam President, the reform of the Employees Compensation Assistance Scheme has gone through thorough review and protracted consultations. As the Fund is already operating on a Government bridging loan approved in June 2000, we have to put in place the proposed reform measures before the Fund is again depleted. I commend the Bill to Honourable Members and appeal for their cooperation to approve the Bill as soon as possible.

Last revision date: 27 February 2002
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