Injury plus costs

The claims market has always been a cause for concern for the insurance industry and there don't appear to be any signs of improvement.

Increases in the number and frequency of injury claims, and weak underwriting results have put pressure on insurers and have led to fears that the UK has adopted a blame and claim culture similar to that in the US.

Insurers have been battling against difficult market conditions and are continually being forced to control their costs more efficiently. As the cost of claims has risen, insurers in turn, have had to increase premiums on motor, home and business insurance to cover these costs.

The problem is exacerbated by accident intermediaries and law firms offering no-win, no-fee services. A major debate currently raging in the personal injury claims market is the question of what constitutes a reasonable premium and success fee.

As a result, insurers are keen to access claimants early in the claims process to avoid an accident intermediary or independent solicitor becoming involved. However, persuading the claimant to do so is not straightforward, insurers need to guarantee claimants that they will receive fair and full compensation.

"Insurers have a real incentive to resolve claims or disputes quickly and efficiently," says Datamonitor insurance analyst Liz Hartley. "Rapid access to claimants is desirable as it can significantly reduce costs. The major hurdle facing insurers in their bid to capture them early is the lack of contact they have.

"Insurers could improve their chances of directly targeting claimants by incentivising customers to pass on injury details."

Many years ago, if you had an accident, be it in your car, at your place of work or in the public domain, you would generally have treated it as just that - an accident.

Risk management
Although accident numbers continue to fall in the UK, the claims figures reveal a slight rise in claims frequency. Nonetheless, the rise of compensation culture seems to have slowed considerably, according to a recent report from Datamonitor.

Hartley says: "Each year in the UK there are a potential 537,000 road accident injuries that could result in a successful claim. Only 347,000 successful motor claims were recorded in 2001-2002, showing that just 64.6% of potentially successful motor claims are being made.

"This indicates room for growth for accident intermediaries and solicitors, but is a warning to insurers of the need for greater risk management," she warns.

The report quashed industry fears that the UK was heading towards a US-style love of lawsuits and questions whether the compensation culture is just a myth.

Yet, insurers still believe thatthere are significant risks of the frequency and cost of claims increasing.

Allianz Cornhill divisional claims manager Roy Hebburn says: "There is a rapidly increasing claims and compensation culture in the UK - where the US and the Republic of Ireland have led, and the UK is in serious danger of following."

Legal battle
Dominic Clayden, head of legal claims at Norwich Union, agrees: "News of the demise of compensation culture is premature. A lot of it depends on how the courts rule on certain test cases, and whether we'll see more accident management companies move into the market."

A number of insurance companies have been locked in a legal battle in the courts for some time as they dispute the issues of reasonable costs. Premiums for after-the-event (ATE) insurance can vary from different suppliers in some cases by as much as £1,000. It is the insurers who are required to pick up these costs in the event of a successful claim.

It is the dramatically increasing cost of claims that is most worrying for the industry. Datamonitor's survey of leading insurers found that the average motor claim payout had risen by 28.6% in the last year to £5,424, the average employers' liability claim had increased by 18.6% to £8,859, while the average general liability payout grew by 12.4% to £5,993.

Allianz Cornhill's experience on personal injury claims inflation mirrors that of the rest of the market, which is from 12% to 14% per year over several years. This is attributed to a combination of increased frequency, additional heads of damages and increased awards, according to Hebburn.

"Awards for stress and post traumatic stress disorder are also now commonplace. That was not so five years ago," he says.

Liability claims have increased by 100% in the last five years according to the ABI's Malcolm Tarling.

"Our major concern for the industry is the increase in the costs," he insists. "No-win, no-fee set ups have seen an increase in the number of cases they are dealing with. We don't necessarily disagree with the litigation process, but sufficient thought needs to go into how these particular methods are funded.

"Year-on-year, we are certainly seeing more low value claims being processed and it is the legal and associated add-on costs which are outstripping the costs of claims. There are more costs than damages being paid," says Clayden. "Costs are at the stage now where they have got out of hand."

Claims rush
There are several key factors affecting the future of UK personal injury claims, including the fate and direction of the accident intermediary market and the potential for the before-the-event market to overshadow ATE insurance, mediation and rehabilitation.

The claims rush is over, according to Hartley. A flood of claims came through the system with the three-year ruling following the abolition of legal aid. The system will now be faced with only fresh claims, making growth much harder to achieve as safety improvements continue to cut the number and severity of injuries on the road and in the workplace.