Universal Credit – Insurers counting the costs of COVID-19

This article was originally published in Insurance Day.

Aside from the horrific cost to life of the COVID-19 pandemic, the economic cost is widely acknowledged to mean a serious recession, the likes of which have not been seen in modern times.

No one is immune to its effects and insurers are no different.

Insurers are facing legal battles connected directly to the pandemic, but are likely to notice a more subtle, but equally significant increase in claims reserves and pay-outs over the next few years due to Universal Credit.

Universal Credit is a single benefit encompassing the former separate benefits of:

  • Child Tax Credit
  • Housing Benefit
  • Income Support
  • Income-based Job Seeker’s Allowance (JSAI)
  • Income-related Employment & Support Allowance (ESAI)
  • Working Tax Credit

Even before this pandemic, insurers would have begun to notice a rise in benefits sought to be recovered thanks to the significant monthly sums payable for Universal Credit.

Whilst claimants saw Universal Credit as an overall cut in their benefits, to insurers and self-insuring companies, they represented a significant increase, on top of existing compensation pay-outs.

This is because Universal Credit included elements of benefits that were not previously recoverable.

In some instances, Universal Credit (along with other benefits) already exceeded what could be offset, leaving insurers paying out additional sums.

Where a claimant was unemployed before any subsequent accident, in compensation terms a loss of earnings claim was avoided, but benefits were often still recoverable. The broad reach of Universal Credit and the increased amounts recoverable compounds that.

In the post-pandemic world, the situation is likely to get much worse for insurers due to:  

  1. The rates of Universal Credit were increased during the pandemic, e.g. the standard allowance for a single Universal Credit claimant increased from £317.82 to £409.89 per month from 6 April 2020 (an almost 30% rise).
  2. The number of people awarded Universal Credit rose exponentially to record levels. The Work and Pensions Secretary reported more than 1.8 million claims for Universal Credit between 16 March and the beginning of May 2020 – six times the usual rate.
  3. Large numbers have become or will become unemployed, as companies ‘balance the books after the pandemic’. Whilst unemployment figures to date show only a modest increase in unemployment, the OBR predicts the UK’s unemployment rate will at its peak jump from 3.9% to between 9.7% - 13.2%. That means four million people out of work, and potentially a further 2-3 million people claiming Universal Credit. As a result, Universal Credit will more frequently outstrip lost earnings.

For example, if Universal Credit is £410 per month, benefits began three months post-accident and they continued for four years, assuming the claimant was unemployed at the time of the accident (due to COVID-19) repayable benefits just for Universal Credit would be £4,920pa or £18,450, on top of the compensation payment. There would be no earnings claim to offset against. On a modest claim, this could easily double the damages pay-out.

All of this of course assumes we avoid a second national lock-down due a second virus spike, making matters worse.

What can insurers do to counteract these increases?

  1. In simple terms, the longer a claim continues the more benefits are repayable (up to a five-year maximum). The sooner the claim is settled, the less benefits insurers will have to pay – prompt settlement of claims with no or minimal loss of earnings will minimise recoverable benefits.
  2. Insurers (their representatives) can still challenge Universal Credit via a CRU review (at any stage before settlement or payment of benefits) or request for mandatory reconsideration (within one month of repayment of CRU benefits after settlement) followed by a CRU appeal if required (within 1 month of the mandatory reconsideration notice).
  3. The grounds for successfully reviewing or appealing CRU benefits are:
  • Were benefits paid as a result of the accident, injury or disease (the accident-related restrictions in everyday activities as opposed to pre-existing ones)?
  • Did the claimant receive these benefits for other reasons, e.g. a pre-existing restriction in everyday activities, which the accident, injury or disease did not worsen or affect?
  • Did the accident-related restrictions in everyday activities resolve before or shortly after benefits were paid, so those benefits weren’t genuinely caused by the accident, injury or disease?

Recommendations to insurers

COVID-19 and the increase in Universal Credit payments presents another challenge to insurers.

Insurers can maximise recoveries and minimise payments to the CRU by carrying out regular reviews to identify cases where recoverable benefits and NHS Charges can be challenged, reviewed or appealed.

Best practice is to:

  • Settle claims quickly where possible.
  • Offset as much universal credit (benefits) as possible against loss of earnings (heads of loss).
  • Obtain expert advice to review, seek mandatory reconsideration or appeal cru benefits to challenge and seek recovery of the benefits repaid.

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