Heavy losses could drive several leading insurance companies to pull out of the employees' compensation market, driving up policy costs for employers. KPMG partner Steve Roder said it was likely some substantial players would stop selling employees' compensation insurance from next year. Intense competition has driven down prices in the sector, causing continued losses for participants. 'It is inevitable some big players will decide to leave the local employees' compensation market as they have continued to suffer losses for the past few years,' said Mr Roder, who heads KPMG's Asian insurance division. Under a scheme introduced in the mid-1980s, employers are required to buy insurance to cover all staff in case of workplace injuries. The scheme covers Hong Kong's three-million-strong working population - a large and potentially lucrative market that attracted 94 general insurers. However, a survey by the Insurance Authority showed the losses of the 94 insurers have increased sixfold in the past four years to HK$576 million in 1999, from HK$98 million in 1996. Consolidation in the sector would reduce choice for employers and probably lead to an increase in insurance costs. Mr Roder urged the industry and the Government to work together to solve the problem in the sector to stop losses. 'Otherwise, the employees' compensation system may not be sustained if more players leave the sector to avoid losses,' he said. While the price war has driven down revenues, compensation awards to injured workers have increasingly significantly in the past few years. During the four years of the survey, the average claim payment increased by 94 per cent while prices charged by insurers decreased 28 per cent. Mr Roder said one of the problems in the employees' compensation sector was some insurers did not calculate carefully how much reserves they needed to back possible payouts. As a result, some did not have enough reserves to back their liabilities. It also led some insurers to charge excessively low prices. Mr Roder suggested the Government look into a regulation recently introduced in Singapore which required all general insurance companies to commission a report each year from an independent actuary - an expert who calculates the risks and premium of insurance policies. The actuary would assess if insurers were charging the right price to support the risks, and would ensure insurers knew exactly how much reserves they should put aside. Hong Kong's present law requires insurers to appoint an actuary to make a report only at the request of the Insurance Commissioner. 'If Hong Kong introduced such a requirement for the employees' compensation business, it would ensure the companies put sufficient reserves to back up their claims and charge the right price,' he said. As a result, some insurers would know the actual cost of running employees' compensation was quite high, which would avoid a price war in the sector, he said. Insurance Commissioner Benjamin Tang Kwok-bun said he would consider the suggestion when he started discussions with the insurance sector to seek ways to solve the problem. But he said there was no decision on whether any legal change would be made. Mr Roder also called on insurers to better manage their claims. He said in many cases, insurers relied on lawyers to handle claims. Too often cases went to court for settlement, which could take years.