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On the basis the domestic motor insurance regime is regulated by statute unlike other types of insurance cover, motor insurers have no scope to mitigate the impact of bodily injury claims inflation by limiting the extent of cover (2). Additionally, seeking to reduce coverage levels for vehicle damage claims and increasing excesses are unlikely to meaningfully suppress claims costs arising from bodily injury. Nor is it straightforward, given the especially competitive climate, to increase premiums as a result of rate hardening in the motor market following a reduction in claims frequency owing to COVID-19 (3).
The best approach insurers can take is to focus on proactive and early intervention. It’s vital to assess the value of claims accurately and early, so that realistic offers can be made where liability or fault for an accident has been admitted.
That means having data at your fingertips and using digital tools to benchmark what injury types for particular prognosis periods are worth. Subsequently, reduction factors must be applied to account for overlapping injuries. By being able to accurately evaluate claims quickly, the prospect of reaching early settlements is increased. Such insight can also help inform opponent-based strategies, empowering claims handlers to know which firms are likely to accept which level of offer.
Our claims valuation tool has been designed to enable clients to do just that. Clyde & Co has the largest casualty practice in the UK, and can harness the most extensive dataset available to help you analyse a claim, identify the overlap and accurately value claims, speeding up the process via AI and automation and reducing the number of touch points along the way.
Mitigating the effects
Take a look at our Clyde & Co Newton offering, AI solutions for casualty claims
The obvious inference is that by squeezing volumes in one part of the market, claims inflation has been exacerbated in another. There may be fewer claims, but each one is worth far more. The longer that inflation surge lasts, the more it will drive the value of claims upwards, which will not only negatively impact current claims but also reserves of unsettled claims from prior years.
Discover Claims Inflation Credit Hire
(1): British Government's Impact Assessment, January 2019 at [5.18]
(2): Part VI of the Road Traffic Act 1988
(3): EY reports that 2021's loss ratio was 64.9%, well below normal levels of 70-75%: EY's UK motor market results webcast: 3 November 2022
Sources
Several factors are at play here. Some firms and their lead generators are targeting minors and ‘vulnerable’ road users such as pedestrians and cyclists who cannot sustain whiplash injuries and whose claims are therefore not subject to many of these reforms. For others ‘claims building’ by layering injuries to several parts of the body has become increasingly common.
On top of the bodily injury-related issues, the motor industry is also being affected by claims inflation related to vehicle damage, driven by the rising cost of repairs – as vehicles become increasingly sophisticated – and extended replacement vehicle hire periods, explored in our article on credit hire.
The rise of claims building
Since whiplash claims made up 96% of settled road traffic accident (RTA) claims (1), the need for reform was clear. This has led to some claimant firms seeking to replace instructions and bolster profitability by building claims for additional injuries (other than whiplash) which exceed the small claims track limit, thereby entitling them to recover costs from compensators.
Looking at published data, we can see the reforms have worked in terms of reducing claims frequency in the volume motor market by around half, from over 800,000 claims per annum at its peak from 2012 - 2016 to 400,000 per annum currently.
However, data also reveals that, since the whiplash reforms entered force, the average value of settlements for RTA-related injury claims proceeding in the MOJ portal has been steadily climbing.
In June 2021, compensation payments averaged around £2,900 but by September of the following year they had jumped by 65% to £4,500. Whilst we would have anticipated an initial increase due to the implementation of the whiplash reforms, which required injury claims valued below £5000 to be notified elsewhere (via a new Official Injury Claims (OIC) portal), since Autumn 2022, the inflationary pressures in the motor market appear more consistent with other casualty lines of business, including Employers’ & Public Liability.
Dealing with displacement
(1): British Government's Impact Assessment, January 2019 at [5.18]
(2): Part VI of the Road Traffic Act 1988
(3): EY reports that 2021's loss ratio was 64.9%, well below normal levels of 70-75%: EY's UK motor market results webcast: 3 November 2022
Sources
Get in touch
On the basis the domestic motor insurance regime is regulated by statute unlike other types of insurance cover, motor insurers have no scope to mitigate the impact of bodily injury claims inflation by limiting the extent of cover (2). Additionally, seeking to reduce coverage levels for vehicle damage claims and increasing excesses are unlikely to meaningfully suppress claims costs arising from bodily injury. Nor is it straightforward, given the especially competitive climate, to increase premiums as a result of rate hardening in the motor market following a reduction in claims frequency owing to COVID-19 (3).
The best approach insurers can take is to focus on proactive and early intervention. It’s vital to assess the value of claims accurately and early, so that realistic offers can be made where liability or fault for an accident has been admitted.
That means having data at your fingertips and using digital tools to benchmark what injury types for particular prognosis periods are worth. Subsequently, reduction factors must be applied to account for overlapping injuries. By being able to accurately evaluate claims quickly, the prospect of reaching early settlements is increased. Such insight can also help inform opponent-based strategies, empowering claims handlers to know which firms are likely to accept which level of offer.
Our claims valuation tool has been designed to enable clients to do just that. Clyde & Co has the largest casualty practice in the UK, and can harness the most extensive dataset available to help you analyse a claim, identify the overlap and accurately value claims, speeding up the process via AI and automation and reducing the number of touch points along the way.
Mitigating the effects
Take a look at our Clyde & Co Newton offering, AI solutions for casualty claims