A new report from global law firm Kennedys examining claims inflation in the personal injury market, has identified psychiatric injury as posing the biggest challenge to insurers.
The report, ‘Claims inflation and personal injury claims: a global review’, examines the key drivers of excess claims inflation on personal injury claims across 11 jurisdictions.
Psychiatric injury claims were a recurring theme across almost all 11 jurisdictions.
The report says: “Proposed explanations for the increase include the impact of the Covid-19 pandemic, greater use of social media and the impact of austerity. Some would suggest that, paradoxically, awareness efforts may be an additional factor contributing to the rise in mental health problems. As such, we are seeing more attention now being placed on mental wellbeing including in the policy arena.
“Earlier this year, the UK government announced £150 million funding for mental health services, by way of illustration. Employee mental health is also increasingly becoming a strategic business priority: employers are being urged to put employee wellbeing into the ‘S’ of their ESG strategy. Notwithstanding the importance in understanding and mitigating mental health problems, we are seeing increased psychiatric claims in the disputes setting. And for many jurisdictions, these types of claims are becoming increasingly common and costly for insurers.”
Richard West, global head of liability defence and partner for Kennedys, says: “Of particular concern to insurers is the fact that claims relating to psychiatric injury are often associated with considerable awards for damages and high legal costs for investigating and defending them. There are also reputational risks for businesses found to be in breach of the relevant legislation.”
Elsewhere, the report highlighted how many of Kennedys’ lawyers around the globe reported a sharp rise in the cost of care due to shrinking labour supply, insecure contracts and rising wages.
The report says: “As a result, not only are defendant insurers in many jurisdictions paying a premium for care services beyond what has traditionally been allocated, but there is a greater risk of significant delays in the resolution of these high value claims whilst the parties search for and obtain the care and accommodation required.”
Analysed in the report, were the claims experiences of Kennedys lawyers in Australia, Chile, Denmark, England and Wales, Hong Kong, Ireland, Northern Ireland, Scotland, Singapore, Spain, and the US.
Also highlighted were increased litigation costs and professional services spend as factors adding to the profound challenges for insurers.
West continues: “Claims inflation continues to be a priority topic for insurers across the globe. Further, rising premiums place the relationship between insurer and insured in a potentially precarious position, risking insureds either seeking to change provider or reducing the level of cover purchased. This increases the risk of challenges to the cover provided or, more commonly, to instances of underinsurance. This can leave the policyholder unable to cover the full losses claimed and make them susceptible to the ‘average rule’, reducing the recovery further.
“Ultimately, without careful mitigation strategies in place and regular communication between insurers and their customers, we predict that the current protection gap in the global personal injury market will widen,” he concludes.