As the UK drifts ever closer to becoming an ambulance chasing society, it looks as though unlimited liability is on its way out. Christopher McKevitt reports

Britain is drifting dangerously close to becoming an `ambulance chasing' society where the insurance industry operates in a climate akin to that of the US or Ireland. Insurance experts say the days of unlimited liability look to be numbered if, in the next five years, the industry is to have any hope of maintaining its obligations to society.

"Where the US and the Republic of Ireland have led, the UK is in serious danger of following," says Allianz Cornhill divisional claims manager Roy Hebburn.

"There is a rapidly increasing claims and compensation culture in the UK, fed by recent reform in legal costs financing and the growth in the claims farming industry."

At AXA, Graham Plumb, manager of the large loss unit in AXA Insurance's corporate claims department, is more graphic: "You only have to stand in the main street of any town and see people selling accident management services."

Plumb says minor claims for whiplash and post-traumatic stress (PTSD) are very high, while the public liability account is seeing large increases in slips and trips.

"The average cost of claims has certainly gone up," he says.

"While damages at the lower end may not have gone up much, the costs associated with the claims have gone up a lot."

Ogden decrease

Allianz's Roy Hebburn agrees: "Stress and PTSD are now commonplace. That was not so five years ago. We recently had an employers' liability (EL) matter for a claimant approaching his 87th birthday involving pleural plaques (scarring of the sac surrounding the lungs associated with aging, though potentially attributable to an underlying cause).

"Such a case would have been unheard of in the recent past."

Paul Mahon, a senior figure within consultant firm PricewaterhouseCoopers' (PWC) insurance division, says that in addition to an increased willingness to sue, there are two key reasons for the drastic increase in claims costs.

The first is the reduction in the Ogden discount rate last year from 3% to 2.5% and which is thought to have cost the insurance industry several hundred million pounds already.

Second, he points to the increased use of conditional fee arrangements (CFAs) which appears to have raised claimant's costs significantly, post-Woolf.

Even the Law Lords, in dismissing Norwich Union's appeal in Callery v Gray, related their unease with the law in its current state, the risks of abuse and how small claims costs are getting out of hand.

One issue stands out. The debate about claims and claims inflation is overly reliant on anecdotal evidence, unsupported by hard figures. And without good figures it would seem a very difficult task to convince government of the need for legislative change.

Tim Wallis, senior partner at Crutes and president of the Forum of Insurance Lawyers (Foil), says the industry does not have good enough statistics to put into the marketplace.

Sharing data

He says insurance companies need to spend more on data capture within their claims departments, and then put aside their competitive instincts to share that information on a common platform.

"You get data capture in the life office and in the sales office, but can the claims department have a steam-driven calculator? You're an overhead boys."

One likelihood is an assault to limit liability on insurance policies as in the US. It's an area AXA has examined and Graham Plumb concludes: "It might be necessary to cap liability on injury claims for all policies."

Wallis also feels the idea of unlimited liability will come under pressure for review. "I now believe the future of unlimited liability is on the agenda of most people with knowledge of the insurance market, mapping out an agenda for the next five years."

Mahon says many insurers are looking to reduce claims leakage and move towards best in class claims handling, which they believe could result in savings of up to 20%.

ABI spokesman Malcolm Tarling says a number of initiatives will be forthcoming in relation to the key area of EL. One idea likely to be discussed is the idea of treating work-related accident and occupational disease as two distinct areas, with some emphasis on self-insurance for employees to help reduce EL premium costs.

But achieving real savings will require insurance professionals and legal professionals to find a common ground.

But that's a whole new ballgame.