The casualty insurance area witnesses changes to legislation all the time, so insurers and brokers must be on top of their game when it comes to educating and communicating with the employers they work with
Most trends in the casualty business are linked to changes in legislation, and the most significant change of late has been the extension of the Ministry of Justice Portal to employer’s liability and public liability claims with effect from August 2013.
With certain notable exceptions, such as PL disease claims and EL disease claims with more than one defendant, organisations on the receiving end of these types of claims with a value of between £1000 and £25,000 and with an accident date on or after 31 July 2013 have to deal with them via an online electronic portal with low fixed recoverable costs.
Claims that start in the portal may, however, exit if the value of the damages changes to fall outside the limits, fraud or contributory negligence is alleged, liability is denied or the prescribed deadlines are not met. Such cases can cost a lot more than within the portal if they proceed to litigation but costs may still be lower than what solicitors were previously used to.
Changes in claims patterns
In volume terms at first there was a big rush from solicitors to get claims in before August 2013 ahead of their drop-in fee income but once the portal was up and running volumes became fairly steady, before dropping off a little during recent months.
An analysis of portal data for the last three months of 2015 has shown decreasing trends in new volumes on a 12-month cumulative basis. PL has fallen 5.6% over six months and EL has fallen by 1.3% over four months.
Simon Denyer, strategic legal development partner at law firm DWF, says: “Both the EL and PL new claims volumes have fallen for each of the last three months. The EL disease portal showed an increase in October, followed by two monthly falls since. Calendar year comparisons are difficult as those portals were relatively new in 2014.
“Nevertheless, the EL portal shows a 13.5% increase in new claims volumes in 2015 compared to 2014, while over the same period the PL portal saw a 1.0% fall. But perhaps PL claims were quicker to enter the portals in 2014. EL disease claims showed a 40.7% increase in 2015 over 2014 but, as this type of claim is often pursued outside the portal, the value of this data is limited.”
But few figures are forthcoming with regard to how much claims have been increasing in value. Matthew Mannion, casualty director at Crawford & Company, says: “There has been a noticeable jump in the value of claims presented both inside and outside the portal but I couldn’t put an exact figure on it, and some of the increase can be put down to a standard inflationary impact.”
Noise-induced hearing loss claims – which are classed as “a disease” because damage occurs over a long period – have been causing particular problems. But the repudiation rates on these are commonly reported to be above 70% as cases often have inadequate working history or medical evidence.
Jon Cawley, head of claims at Towergate Insurance, says: “It’s being driven by the claims farming community, as they are playing a volume game, pushing them through the MOJ portal and hoping that in a lot of cases employers will just admit liability. We are definitely seeing a pattern of more spurious or weaker claims.
Claims management companies see it as their job to push these claims through but there is a huge admin burden for brokers and insurers.
“For claims to be repudiated a lot of research has to be done into issues like who the claimant is and where they worked. Insurers quite often organise their own hearing tests and the results can differ noticeably from the claimant’s evidence. And the costs of these investigations ultimately impacts on premiums.”
A similar story with NIHL claims is in evidence outside the portal. Stephen Kavanagh, director of Davies Casualty, reports a significant spike and that his firm has been denying around 80% of them, suggesting a lot of speculative claims.
Steve Wright, claims manager at Russell Scanlan, recalls that virtually all the disease cases he has been coming across are outside the portal because the claims solicitors involved are bumping up the costs to above £25,000 or getting denials of liability.
Even if claims start out within the portal a proportion drop out at stage one because the insurers or defendants don’t want to concede causation or waive the right to a limitation defence, which would happen if they admitted liability.
Limitation period approaches
Unfortunately, this desire on the part of claimant solicitors to find rich pickings outside the portal could be due to get a whole lot worse because fee income from pre-portal claims is beginning to dry up and will officially end when the three-year limitation period expires on July 31st 2016.
Andrew Evans, partner and head of casualty at law firm Hill Dickinson, says: “The market has felt considerable savings on costs on claims of up to £25,000 going through the portal, often around 50%, although damages have gone up by 10%. But there is risk that because the end of the primary limitation period for new claims is nearing we will see more higher-value cases coming through.
“The claims solicitors are likely to become more innovative regarding anything they can use to get cases outside the portal, and we are not just talking about deafness claims. Manual handling has stayed reasonably static but could be vulnerable as it requires subjective medical opinions and the medical literature is uncertain. They could also go for anything of a reputational nature, like claims arising from product recall.”
Wright agrees that other types of higher-value claims could grow in importance and he is particularly concerned about exposure to vibrating machinery, pointing out that it could attract claims even from drivers of lorries and agricultural vehicles. Nevertheless, he doesn’t expect activity in these new areas to begin until the noise-induced hearing loss gravy train has been completely exhausted.
He says: “Because a lot of exposures to noise-induced hearing loss date back 20 to 30 years the claims solicitors know there can be very few records with which to refute the claims. We’ve even had a claim dating back to the 1940s from a naval armoury fitter. We found details of the insurer but no documents to support any sort of defence against the allegation.”
Improvement hoped for
All in all, however, the market will hopefully see the benefits of the MOJ portal outweighing the downsides of anything that the claimant solicitors might get up to.
David Williams, partner at law firm DAC Beachcroft, says: “Generally I would expect there to be a reduction in solicitors’ costs on fast-tracked claims as the portal’s share increases while the old business drops away. That is when we’ll all feel the reform. We are beginning to feel it but it will be gradual.”
An increasing trend for insurers to provide rehabilitation facilities should also put downward pressure on claims costs. Kavanagh says: “Although some insurers have tried to apply a scatter-gun approach, if rehab is done properly it can reduce the value of individual claims. Anecdotally people will say that if an insurer offers rehab it can head off claims altogether.”
The fact that periodical payment orders haven’t taken off yet in volume has proved a further bonus. So far demand has been largely limited to multi-million pound cases involving lifetime care but, should the situation change, insurers will have to invest more in predictive analysis.
Cawley says: “It’s too early to say if PPOs are increasing the claims bill as it will take years to know the true cost but the number of cases being settled by them is very small because claims lawyers tend to prefer lump sums, and 80% of casualty claims are for under £5,000. PPOs are an increasing trend but it hasn’t exploded by as much as the market thought.”
The fraud problem
According to statistics from the Association of British Insurers, in 2014 the number of liability insurance frauds detected jumped by 75% to 19,800 over 2013, and rose in value by 20% to £330m.
Williams questions whether there is currently enough scrutiny within the portal to weed out fraudulent claims, although he acknowledges that this is to a certain extent counterbalanced by the Criminal Justice and Courts Act 2015 strengthening the arms of the judges when fraud is uncovered.
Furthermore, John Freeman, senior investigator at Questgates, cites a general reluctance to investigate fraud as a whole in the liability area. He feels this is often because insurance companies realise there are statutory defences like regular maintenance or training programmes that can absolve people from liability even when something obviously seems fraudulent. He says: “When someone has fictitiously injured themselves it’s easier and cheaper for an insurer to say that there’s no liability because they provided adequate training, but the problem is that because no action is taken the employees might do it again if they move on elsewhere.
“The general publicity around 'no win, no fee' has created an environment in which members of the public can feel it’s worth having a go, and the hot spots we’ve had for fraud have tended to be in areas that are still performing poorly economically.”
Most commentators report that underinsurance is rarely an issue in the casualty market because of the high sums insured. EL often has limits of £10m or £15m and PL of £5m or £10m, while product liability tends to be quite bespoke and the sum assured is set specifically to reflect the risk.
Cawley says: “There are very few high value claims where the policy limit is exceeded but the number of businesses that have gone into liquidation or administration over recent years has seen a proportion of claims presented where the applicable policy has a deductible which the claimant cannot recover. The insurer could potentially be on the hook for the whole of the claim, depending on how the contract was written, despite not receiving any premium for the deductible.”
“While the numbers of long-tail disease claims has not reduced to date, particularly for asbestos and noise-induced hearing loss, underinsurance does not appear to have been a problem in relation to such claims.”
But, on the other hand, the British Insurance Brokers’ Association does voice concerns that standard limits in packaged commercial insurance products of £5m for PL and £10m for EL could prove inadequate for a catastrophic injury claim.
Martin Bridges, technical services manager at Biba, says: “Inadequate levels of indemnity may very well be affected by long-tail claims. Brokers are seeing claims made against clients now for noise-induced hearing loss and mesothelioma and asbestos-related diseases going back to the early 1960s, prior to the compulsory requirement for EL insurance.
“At that time limits of indemnity were as low as £100,000 or £250,000. We are seeing emerging risks as technology develops at pace, so due consideration in setting limits of indemnity that will respond to claims in future years is a definite consideration for brokers when advising clients.”
Bluefin also feels there could be issues with some indemnity limits on public/product liability. Its group claims director Martin Gilroy says: “It is not unusual to see a limit of £1m or £2m when in fact at times even £10m might not always be adequate. We have experience of a PL limit of £2m for an unincorporated body and a claim potential of £5m.”
New legislation is being seen all the time in the casualty insurance area and it involves lots of moving parts so to avoid problems of underinsurance and other pitfalls, it is clear that insurers and brokers wil have their work cut out providing good education and communication to the employers they work with.