Today, insurers and reinsurers across all classes of business are taking an increasingly broad and imaginative view of their responsibilities, and this is especially the case in the motor and personal injury market, says Charles Catt.
The days are long gone when our job was just to transfer risk. Today, insurers and reinsurers across all classes of business are taking an increasingly broad and imaginative view of their responsibilities, and this is especially the case in the motor and personal injury market.The Swedish insurer Folksam, for example, has since the 1960s pioneered a progressive and enlightened approach by organising research into car safety and rehabilitation. This activity stems from an acceptance that the insurance industry can and should do more for society than simply accept premiums and pay the claims.
The United Kingdom can hardly boast to have had the most enlightened record in this respect, but a study recently commissioned by the International Underwriting Association (IUA) with support from the Association of British Insurers (ABI) shows how far the industry has moved. Earlier this year, the IUA agreed to go ahead with a second UK Bodily Injury Study 18 months after its predecessor organisation LIRMA completed the initial exercise.
The aim is to give underwriters, claims managers and everyone else involved with the insurance process a better understanding of bodily injury. In particular, the study sets out to quantify claims inflation in as detailed a way as possible, and identify the underlying factors at work, especially legal and medical developments.Crucially, the IUA and ABI accept the principle that insurers and reinsurers should become proactively involved in helping people make the best possible recovery from accidents. Apart from the overriding humanitarian considerations, a victim who is mobile and able to return to work is likely to be less expensive to his insurers.
Reinsurers are watching events with particular interest. Recent analysis, by the actuaries English Matthews Brockman and Dr Lis Gibson of ERC Frankona, has shown that some reinsurers in the UK motor market could face increased claims of up to 100% following the House of Lords judgment last year on the use of the Ogden tables for calculating lump sum payments for serious injuries.
Our bodily injury working party, chaired for the second time by David Watson of NAC Re, has now embarked upon an exercise that, if successful, will make the insurance and reinsurance industry more actively involved in the rehabilitation of victims than ever before.
Original findings and further analysis
The report builds on its LIRMA predecessor, published in 1997, which is now accepted as the most comprehensive and authoritative work of its kind. It was the result of in-depth medical, legal and actuarial research, including an analysis of 25% of all serious motor injuries during the decade 1986-1995. The main findings were:
• Claims inflation had been running at an average of 13% a year for the past 10 years and was likely to continue to do so.
• The main factors were increasing life expectancy of victims, rising health care costs, a growing compensation culture and changes in the law.
• There is a need for an independent statistical bureau to monitor claims trends.
• The insurance industry should adopt a more proactive role in the rehabilitation of accident victims.
• The industry should team up with government, the medical profession and other interested bodies to bring about improvements to rehabilitation.
Although the report has provided claims professionals and underwriters with valuable information, as well as stimulating debate about the role of the industry in assisting rehabilitation, it left more work to be done. It suffered, in particular, from a shortage of raw data and although the study identified certain fundamental issues, it did not resolve them.
It may seem strange that the largest exercise of its kind ever carried out, involving an analysis of 50,000 claims, suffered from a lack of data. The new report, however, will be based on an even bigger sample, and a more consistent one. This should enable our actuaries to be more precise and definitive in their analysis of trends and to differentiate more confidently between types of claim. The work should show, for example, whether larger claims are rising faster than average, and how age and geography influence claims patterns.
By combining our legal and actuarial research, we shall be able to analyse a series of “what if?” scenarios, measuring the financial implications of possible legal developments, as far as insurers and reinsurers are concerned.
The new report will also consider how the good intention of becoming involved in rehabilitation could work in practice.
Involvement in rehabilitation
Claims managers no longer just sign cheques. They take considerable interest in the victims' care and ensuring that home and work environments give them as much independence as possible. There is arguably a role for a central authority to co-ordinate information exchange and encourage good practice - not just among insurers, but among lawyers, the trade unions and government. Perhaps, we should go further still and fund certain facilities.
What practical steps can be taken to establish a central statistical bureau? How will it be funded and how will the concerns surrounding confidentiality be met? What legal developments are likely to affect us and what, if anything, should we be doing to resolve them?
The IUA does not claim to have the answers to all these questions, but we are working with many other groups. These include the ABI, Lloyd's, government, trade unions, personal injury lawyers, and the legal, actuarial, and medical professions. It is unusual for such a wide range of interests to join together for a common purpose.
Charles Catt is chairman of the IUA's technical and underwriting (property and casualty) executive committee, and managing director of NAC Re International. The IUA second UK Bodily Injury Study will be published in October and launched at a seminar at the Sedgwick Centre in London.