Insurers must seek to mitigate claims inflation – although there is ‘no simple answer’

There are no easy answers to the problem of excess claims inflation, which is currently being driven by economic, social, medical and legal factors, according to lawyers at global law firm Kennedys.

Speaking at a seminar entitled Liability defence claims inflation on 7 February 2023, the firm’s spokespeople noted that without adequate anticipation of the impact of claims inflation, insurers may potentially be exposed to a number of challenges.

These include inaccurate reserving, underinsurance, gaps in cover and the development of unexpected claims.

Richard West, partner at Kennedys, said: “Excess claims inflation is driven by many different factors, including the rise of risk and cost associated with the advances in medical science and technology.

“Social inflation is a subset of excess claims inflation with increasing costs that are largely attributed to social trends or movements.

“The rise of these social trends and movements has resulted in an increase in the volume and cost of claims, which has meant that this is an area causing understandable concern for insurers and their customers.”

Willingness to make claims

There are a range of economic factors driving excess claims inflation, seminar panellists explained, from the upward pressures on salaries and worker shortages to the challenge for companies to meet demand while battling supply chain issues and rising prices.

The economic situation is also having a marked effect on people’s willingness to make insurance claims.

Rory Jackson, partner at Kennedys, explained: “The impact of the changing economic situation and the cost of living crisis impacts everyone.

“It is going to affect the willingness of people to make claims. We’ve all seen situations where someone puts up with a bad back until they’re made redundant and then puts in a claim thereafter.

“It might affect [when] some people make claims if they’re struggling to find work or indeed they are able to hold onto their jobs. It also has a bearing on whether people are willing to litigate.”

Mitigating inflation

For personal injury claims, the cost of care is rising - Rachel Moore, partner at Kennedys, noted that commercial care hourly rates have gone “through the roof”, with high value cases showcasing some of “the highest costs we’ve seen”.

She added that more medical claimants are resorting to private healthcare, with virtually none using the NHS at present – yet these costs are also constantly going up, particularly for aids such as prosthetics that come at a high price.

There has also been a rash of new claim types coming through, Moore continued, including claims around complex cases of post-traumatic stress disorder, long Covid, gaming disorders and employers’ liability data breaches.

She continued: “There is no simple answer. There are various things you can do to try and mitigate claims inflation in the UK - things like proactive rehabilitation.

“Technology can [also] aid a claimant that needs care, but that comes at a cost. Robust experts [are] key - particularly in larger cases - surveillance and background intelligence are absolutely key. We’re almost doing this as routine now.

“[In addition,] a focus on fraud [and] being very proactive over costs [can help too]. None of these on their own will bring the cost of a case down, but [using] all the tools you’ve got is the best way.”