With an eye on the London Market, Complex Injury Partner, Phill Bratt, details five key factors to bear in mind during policy renewal season.
April is one of the busiest times of year for reinsurers and insurers alike, with many policies coming up for renewal at the same time. As someone who specialises in defending catastrophic injury claims, it feels as though this might be a particularly challenging year due to a number of changes.
So here are five things to consider this renewal season for those underwriting and reinsuring casualty and motor policies.
Let’s start with the big one. The PIDR is due for review this year. The review is legally required to start by 15 July 2024 and then the Lord Chancellor must conduct the review and make a determination within the 180-day review period. The expert panel has already been convened and their call for evidence closed on 9 April 2024. Keoghs has provided a detailed response so please get in touch with Head of Complex Injury, Ken Young, if you want to know more.
What we have learned from the last two reviews is that no one can predict what will happen with any certainty. It could go up or down which will lead to uncertainty as to the value of all personal injury claims with future losses. This is likely to cause cases to be more contentious, delaying settlements, and ultimately increasing cycle times. Unfortunately, it is well known that increased cycle times usually means higher indemnity spends.
For what it’s worth, my prediction is that the PIDR will increase from -0.25%, although it is impossible to say by how much. If it increases, the indemnity spend on catastrophic claims may well come down, but don’t count on it.
The Judicial College Guidelines 17th edition was published on 5 April 2024. In short, there is an average uplift of 22% across the board for damages for pain, suffering and loss of amenity (PSLA). If you want to know more, Keoghs has provided a detailed overview here.
Most personal injury cases are worth less than £10,000 and so the uplift is likely to be a few hundred pounds. This obviously mounts up fast across a large book of business – fleet insurers beware!
If you are unfortunate enough to have a catastrophic injury claim on your book it is likely that PSLA for a tetraplegia injury could be £50k to £90k higher than last year.
On top of the JC Guidelines uplift is general inflation, which I estimate is increasing most heads of loss by about 10%. That, combined with more advanced technological solutions becoming more expensive (some microprocessor prosthetics now cost more than £100,000), is likely to increase the cost of all special damages.
I have previously written about ‘Super Care Packages’, and how wage inflation and a lack of carers is also driving up the cost of care. I was delighted to see the average ASHE increase for carers in October 2023 was ‘only’ 6.77%, against my prediction of 10%+, but that is on the back of an increase of 7.01% the previous year.
A word of caution though – we are still seeing the rates of care increasing significantly over this percentage, leading to a discrepancy between the ASHE figures and what we are being quoted for real care packages. With the shortage of available carers there is also more of an emphasis on agency care packages, rather than direct recruitment, which are generally viewed as being better at dealing with recruitment issues.
Last October I wrote an article on why a limit of indemnity of £10M was not enough for an EL/PL policy. With the increasing costs of claims, having an appropriate limit of indemnity is even more important for you and your customer. I am still having regular conversations about indemnity limits on policies which are too low. It is too late if I am having that conversation with your customer.
My plea to all insurers and reinsurers is to make sure you have done everything you can for your customers to make an informed choice about the level of cover they require. £10M simply isn’t enough to cover catastrophic injury claims. It is vital to make sure that your underwriters and brokers understand that if the worst happens and someone suffers a catastrophic life changing injury, they need to have sufficient insurance cover to pay for it. Otherwise they will have to pay for the shortfall themselves.
Finally, there are more and more electric vehicles being purchased each year. The government has mandated that in 2025 28% of new car sales are electric, rising to 52% in 2028 and 80% in 2030.
Most will be aware of the devastating effect of an electric vehicle catching fire in the Luton Airport car park on 10 October 2023. The risk of these ‘one-off’ events is increasing and needs to be factored into all policies going forwards.
Also, as highlighted in this report by Thatcham Research, the cost of repairing electric vehicles is approximately 25.5% higher than their petrol/diesel equivalents.
In short, most casualty and motor claims are likely to be more expensive this year due to the uplift in the JC Guidelines and general claims inflation. For the highest value claims, that may be mitigated if the PIDR increases from -0.25%, but it is impossible to say at this point. I’d recommend erring on the side of caution as most of us have been surprised by the outcome of the last two reviews. This is also something to consider when reviewing your reinsurance contracts.
These five key points are far from an exhaustive list, and there are many more issues to grapple with this coming year. For instance, cyber risks, supply chain issues due to delays in global shipping routes, and climate change are also likely to have significant impacts on insurers’ bottom lines.
In an increasingly digital business environment, be prepared for your customers to shop around and remember to keep them at the heart of your process. The personal touch might just be the defining factor for a renewal.
Ultimately it could be a tough year for catastrophic personal injury settlements and indemnity spends. Insurers and reinsurers will continue to need their trusted legal advisors and Keoghs, both here in London and across the UK, have the necessary expertise to help guide you through the coming year and beyond.
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