Motor excess of loss claims are under pressure generally in Europe, despite considerable differences in personal injury compensation systems between countries, as Jean-Marc Sarafian explains.
In our role as a reinsurer of motor risks over many years, SCOR has occupied a privileged vantage point from which to observe trends in compensation for personal injury, especially the most severe cases. Because of our non-proportional treaty acceptances, particularly excess of loss, we have access to a high level of information on major motor claims, which in the majority involve serious personal injuries.
The analysis that we make today of this type of claim produces the following comments:
Motor insurance is more and more frequently liable in cases involving what are considered weaker or more vulnerable road users.
Bodily injury is one area in which the domestic regimes of individual European countries remain very strong.
There is a strong tendency to distinguish between the economic effects of disability and its non-economic consequences.
These non-economic or moral damages are increasing and more widely indemnified.
In the majority, the cost of personal injury claims falls on insurers. Social security systems either pay only limited amounts or have a wide and increasing ability to clawback what they have spent.
Technical reserves for future losses have been adversely affected by the combined effects of the increase in life expectancy of seriously injured people and the general reduction in interest rates.
The nature of motor liability risks, a mass risk par excellence, makes it fertile ground for the ceaseless development of victim protection. This trend shows in a greater and greater recognition of the liability of the driver toward other users of the road system, particularly the most vulnerable, pedestrians, cyclists and passengers.
Even in countries whose legal systems are not based on codes, but on common law which requires proof of fault, the law is very often moving toward increasingly strict liability on the part of the driver. Legal procedures increasingly presume that there has been error or fault by the driver, while making the driver liable for minor negligence.
In addition, in Germany for example, specific laws have introduced no fault liability regimes, one of which deals with road traffic. Under these regimes, indemnification is automatic but usually based on a fixed rate and limited. Where possible, therefore, in these countries, victims try to rely on the common law liabilities of the originator of their injuries to avoid the limitations.
In a further stage of evolution, some countries have introduced specific laws to cover compensation for victims of motor accidents. This is the case in France and Belgium. The French law of 5 July 1985, called the Badinter law does not acknowledge - except for the driver - the notion of fault, but is only interested in the rights of the injured pedestrian, cyclist or transport passenger to compensation. In this way, the law considers that the vulnerable user of the road system has an automatic right to indemnification for injury, with certain exceptions, the best known of which is “inexcusable fault”, the sole cause of the accident.
In the years since the law was passed, the French courts have since taken it upon themselves to reduce this principle to its most simple. Thus, in France a drunken pedestrian who wanders out into the path of a car being driven legally is nonetheless automatically entitled to compensation by the motor insurer. The courts refuse, in effect, to consider that the pedestrian has committed an error which is inexcusable and the sole cause of the accident.Finally, I would like to point out that this law has been very innovative in imposing on insurers a strict schedule for the compensation of victims with a variety of penalties for delays or inadequate offers!
In 1994, Belgium introduced a law which is substantially similar in that part of the law covering “right to indemnification”, extended in 1995 to transport passengers, and is today involved in completing this law with a procedure for the offer of indemnification, always with the French system in mind. A law of the Badinter type is also under discussion in the Netherlands.
European legal systems for what can properly be called compensation for victims of accidents are noticeable for their singularity. The English distinction between “general damages” and “loss of amenity”, the French concept of “'incapacité permanente partielle”, the German “schmerzengeld”, the Dutch “smartegeld”, and “danno biologico” in Italy, arise from the specific experience and legal developments of each country and its culture. There is also the fundamental decision by each country in making a choice between a system based on a fixed amount or an actuarial calculation of indemnification.
The distinction between economic effect and economic effect of injury linked to a functional deficit, particularly when the injury suffered has been severe, represents a serious trend in Europe in recent years. The observation may be surprising but if many European countries, such as the United Kingdom, Germany, Belgium and Holland have made this distinction for some time, it has not been the case until recently in countries such as Spain, France and Italy.
In this regard, France and Italy have followed an interesting, but opposing, path in recent years. France had a global concept of damage linked to disability and evaluated the totality of damages by reference to a value of that disability without worrying too much about the actual economic impact it caused the victim, except in certain cases to enhance the value of the disability tariff to an extent which was only barely more realistic than otherwise. Today, this has been overturned: non economic loss is compensated on a tariff (calculated in points), but the economic loss is evaluated separately and purely on an actuarial basis.Italy calculated economic loss actuarially, but did not compensate moral damages related to what is properly called loss of function. Today, however, it is the case by means of the “danno biologico” an innovative legal device which is often discussed because of its imprecise criteria for quantification.
The courts in many European countries are assessing the moral damages, once marginal in importance, in such a wide way that they have become a growing concern in cases of injury as well as death. In France, this is most obvious in cases where public opinion is a major force, such as the problems related to the transfusion of blood contaminated with HIV/Aids or hepatitis C virus. Today, the regimes in effect in France for injury specifically linked to contaminated blood are of the order of FrF 2 million for HIV/Aids and FrF 1 million for hepatitis C. These figures are two to four times higher than those which would usually be seen for pretium doloris (pain and suffering) for younger and more seriously injured victims. The level of payment for moral damages in Spain is also very high, particularly following death.
What the future influence of these trends will be on the general level of compensation for moral damage in Europe it is too early to say, but it is not difficult to foresee that the increase will continue.
The respective assumption of responsibility by insurers and by state organisations for claims linked to civil liability in general and motor accidents in particular is an important one for insurers; in Europe so far the situation has been mixed. Broadly, three groups can be differentiated:
• countries where the state offers restricted payments and plays a limited role in recovering from insurers (the UK, Spain and Portugal, for example);
• countries where the state is more generous in its payments but still is comparatively limited in its recourse against liability insurers (Netherlands and Scandinavian countries);
• countries where the state makes significant payments but also has a substantial right of recovery against insurers (France, Germany, Belgium).The effect of the increasing burden on social security systems over the years has resulted not just in a tendency to reduce the level of state responsibility, but also to increase the right of recourse by the public organisations against the insurers. This is taking place in the Netherlands, the UK and certain Scandinavian countries. The objective is to make the liability insurer the principle underwriter of civil liability, not itself especially startling but it results in problems for the insurer in balancing its books in this class. How easily can the necessary adjustments to premium levels be made?
Finally, one of the most marked changes in the last few years is, without doubt, a general revision in the methods of calculating future losses under the two influences, both of which affect insurers adversely: the increase in life expectancy for seriously injured people and the general fall in interest rates. These two factors determine the calculation of the value of the capital sum needed to compensate a victim for lost earnings or future expenses. It is clear that the rise in one linked to the reduction in the other has significantly augmented the sum theoretically necessary to invest now to pay for future costs and damages.
The most spectacular example of this is, no doubt, the approval in English law of the Ogden tables, based on work done by a working party in 1984 under Sir Michael Ogden which produced a series of recommendations relating to tables for calculating lump sum awards, in particular the rates of interest that should be applied. The group suggested that the level of interest which should be assumed should be based on risk free, government bonds where the annual rate varies between 2.5% and 3.5%, compared to the tables in use previously where the interest rate multiplier varied between 1.5% and 5.0%. After a legal battle, the House of Lords confirmed the validity of the Ogden tables in a decision on 16 July 1998. The result has been a significant increase in the level of personal injury claims, of which a good number are motor.
The same type of phenomenon with similar consequences has occurred in France in relation to the actuarial determination of future income. Following the ministerial decree of 20 December 1996, insurers have been required to use the mortality tables of 1988-90 as a reference for calculating the capital sum required and assume a maximum interest rate of 3.5%.
This has been a rapid and superficial tour of the horizon of the countryside of Europe in terms of compensation for serious bodily injury, which will by its nature strongly influence the claims development in motor insurance and reinsurance. SCOR has examined certain aspects of the issue in more depth, in particular the settlement of personal injury claims by means of annuity. This is available from our technical department.
Jean-Marc Sarafian is technical director, claims and legal affairs for SCOR in Paris. Tel: + 33 (0)146 98 72 92; fax: + 33 (0) 146 98 78 31; e-mail: JSARAFIAN@scor.com