What trends are impacting the complex specialty claims space?

How can insurers and reinsurers mitigate the ongoing challenge of inflation?

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September 4, 2023

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This editorial was originally published in Insurance Business magazine, and is shared here with permission and thanks. Read the original here

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With significant involvement in handling test case litigation in HAVs (hand arm vibration), asbestos-related and sensitive claims, including group actions and policy trigger litigation to his name, Michael Mackenzie (pictured), head of specialist claims at Pro Global has a unique perspective of the trends currently impacting the complex specialty claims space.

Speaking with Insurance Business, Mackenzie, who has been involved in work on a range of public inquiries, including the Hillsborough disaster and IICSA, and who currently chairs IRLA’s Legacy Committee, highlighted how changes to the legal environment continue to dominate experience in this area. Jurisdictional relativity is also becoming increasingly pronounced, he said, while key trends include the following:

A pronounced increase in noise induced hearing loss claims, which is likely driven by the upcoming changes to the Fixed Recoverable Costs “FRC” regime.
The consolidation of the noise induced hearing loss market, with a small number of claimant law firms intimating the majority of new notifications.
The increased frequency and severity of abuse claims, with differences in the Scottish jurisdiction around the law of limitation and quantum driving increases in the frequency and severity of losses.
The emergence of sports head injury claims related to the onset of neurological conditions, such as dementia, caused by head injuries have been on the rise.

“A number of interconnected factors and stakeholders contribute to the complexity, and understanding of some of the issues that affect or influence such a claim can help (re)insurers be more proactive and responsive,” he said. “Whatever the type, severity or amount of a claim, the key is to have a firm grasp on data analytics to diagnose and plan interventions and good and timely communication to remove friction, delay and unnecessary distress – and ultimately improve outcomes for those impacted.”

Reinsurance Challenges

Mackenzie noted that (re)insurers operating in the complex specialty claims space are facing several pressing challenges. Rising inflation and the subsequent increase in legal costs and claims payouts are impacting the overall costs of claims, he said. Meanwhile, the continued emergence of new, pioneering life-extending treatments creates challenges in assessing mesothelioma claims.

Accurately reserving against historic books of business that are affected by an evolving legal environment and shifting claims trends can be particularly challenging, he said. (Re)insurers must also navigate the complexities of historical long-tail claims, which require dedicated resources and expertise for effective management.

“Different laws in different UK jurisdictions is another factor (re)insurers must contend with, as is keeping up-to-date with changes in the legal environment,” he added. “Increasingly, data is king, both in terms of monitoring trends and understanding the likely impact of a changing legal environment. The ability to diagnose issues and plan interventions is essential to ensure outcomes are appropriate.”

Mackenzie cited the impact inflation is having on (re)insurers’ current books of business as “significant”. Rising prices, particularly in legal costs and specific heads of loss are driving increased claims settlements, he said. This inflationary pressure necessitates insurers gain control over their claims exposure and seek operational efficiencies to mitigate the impact.

“Inflation is also affecting (re)insurers’ historic books of business,” he said. “The rising costs of servicing long-tail claims from an administrative, legal, and payout perspective are a concern. It is crucial for insurers to reassess their reserving policies to ensure accuracy and potentially increase reserves to address the impact of inflation.”

Mitigating the issues

Identifying some of the key steps (re)insurers are taking to mitigate these issues, he highlighted that they are focusing on operational resilience, embedding operational efficiency measures, and triaging complex claims effectively.

“By proactively managing claims and adopting optimised claims management systems, (re)insurers can enhance cost efficiency and accurately reserve for liabilities,” he said. “They are also leveraging technology and data to drive improved supplier engagement, streamline claims handling processes, and identify trends for effective defence strategies.

“It is critical that (re)insurers stay up-to-date with the latest legal, political, medical and media developments in the complex claims environment and work closely (and early) with trusted subject-matter-expert partners to help analyse their exposure, and handle all complex claims fairly, sensitively and efficiently.”

Pro Global is actively working to support (re)insurers in navigating the complexities of historic and current claims, he said, and it is well-positioned to do so due to its expertise in reserving accuracy, optimised claims management systems, and access to specialised resources.

“We are focused on being a proactive and supportive partner that can be relied upon to accurately assess exposure, define claims handling strategies, engage with leading lawyers and physicians early in the process, and streamline claims administration and triaging,” he said.