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In this new column, CILA reports on amusing and interesting stories from the Insurance world.
Injury Claims Up Up Up
The story told by figures in the Fourth UK Bodily Injury Awards Study show that for bodily injury claims paid by motor insurers over the past decade the only way is up.
The total cost of such claims rose at 9.5% a year between 1996 and 2006. This was more than double the growth in average earnings and, read alongside previous editions of the study, shows that costs have jumped by 840% over the last 20 years.
Assessing trends in bodily injury claims costs can be difficult, particularly when looking at relatively recent cases. This is because of the fact that it may take several years for some claims to be finally settled and during the lifetime of a claim insurers may regularly revise estimates of their liability. However, one of the most striking findings of the study was a significant improvement in insurers' procedures for handling bodily injury claims.
There are three elements to this enhanced performance, which has been to the benefit of both claimants and insurers alike. Firstly, a sharp increase in the speed with which claims involving bodily injury elements are identified. In 2005 some 91% of all personal injury claims were notified within the 12 months following an accident, compared with just 72% for accidents in 1999. This trend is apparent for both large and small claims, though it is particularly conspicuous for larger claims.
Secondly, more accurate and prudent estimation of individual case reserves has meant that incurred claims estimates have approached their ultimate value much more quickly. The development of reserving levels does vary quite significantly from company to company and according to the size of the claim. But overall it can be seen that, after four years, collective case reserves together with claim payments to date are a reasonably accurate assessment of the ultimate claim cost.
Thirdly, there is also some evidence that bodily injury claims are settling more quickly. Again the trend can be observed most clearly for larger claims, but is evident across the board. In 1996 the estimated time to settle claims of more than £5 million was 13.6 years, a decade later this estimate had dropped to just 7.5 years. For claims of between £100,000 and £250,000 the estimated time to settle was 6.1 years in 1996 falling to 4.2 years in 2006. Measuring settlement durations has not been an exact science since few recent claims have settled and those that have tend to be the simpler cases. Thus, as part of the research, the probability of different types of claim settling at different periods was assessed and used to project likely settlement dates for all outstanding claims. A typical large claim still takes a significant length of time to settle and, generally, the larger the claim, the longer the settlement period tends to be. This is unsurprising given the complex nature of many such cases and the fact that, in the case of minors, a three year statute of limitation often does not apply. Pressure to settle claims more quickly comes from both consumers and claims managers, as claims tend to be cheaper when settled early. It does appear that such pressure is having a discernible effect.
Despite efforts made by all parties to create a more effective claims process, inflationary pressures remain high. The 9.5% average increase in cost per policy for claims revealed in the Fourth UK Bodily Injury Awards Study compares closely with results from the third edition of this research published in 2003.
This earlier work found that such 'burning costs' rose by 9.9% over the period 1991 to 2000, compared to an increase in National Average Earnings of 4.2% for the same period. Furthermore, this runaway inflation in claims costs has come at a time when the number of fatal accidents has actually declined. Figures from the Department of Transport show that the number of people killed or injured on the roads has fallen by 20%. Other things being equal, this would be expected to have reduced claims frequency and, consequently, to have reduced inflationary pressures. Indeed, given the improvements in road safety, there has been a surprising and significant increase in the frequency of claims in the range from £2,000 to £5,000. This is likely to be related to an increase in whiplash claims.
The rising cost of claims, however, can be seen most dramatically among the very largest cases. The experience of these cases is of particular interest to the reinsurance community and so the research has been constructed to be of particular use to reinsurers. Increases in claims cost per policy are tracked for all claims falling within a claim size band and these claims size band threshold points are kept in constant money values. Thus, it can be shown that the decade up to 2006 saw claims inflation of 6% a year for cases less than £80,000, but 10% for claims of more than £80,000. Meanwhile, costs per insurance policy for claims of more than £5m have jumped by an estimated 30% per annum over the last five years. The number of claims reduces sharply as the size band increases. It can now be expected, however, that there will now be about 121 claims over £100,000 per year per million policies. There will be about 8.5 claims over £1million per year per million policies, and about 0.85 claims over £5 million per year per million policies.
In short, there are now more and more very large claims emerging. The insured market is currently dealing with three cases greater than £15 million and a further Motor Insurance Bureau claim is estimated to be nearly £20 million.
Another noticeable finding from the research concerns the proportion of total bodily injury claim amounts that can be attributed to legal costs, which has remained relatively static at 30% over the last few years. Given that bodily injury claim costs now account for around one third of motor premiums, this means that the legal cost element itself accounts for just over 10% of the premiums paid for motor insurance. This represents a market of over £1 billion for the legal profession.
The rising overall cost of claims has resulted from various legislative and legal changes, including the introduction of insurers having to routinely reimburse the NHS for the cost of treating motor bodily injuries, increased life expectancy in calculating compensation and growing amounts awarded to fund care regimes. Possible changes to the law on damages and an increased take-up of periodical payments could both lead to further claims inflation in the future. The cost of medical treatment has also risen faster than average inflation.
Norwich Union warns businesses of the catastrophic dangers of using acetylene cylinders
Businesses should be aware of the hazards of working with acetylene and the importance of risk management when using such a flammable gas, says Norwich Union.
The call comes as London Fire Brigade is campaigning for new government controls over businesses using acetylene cylinders. Acetylene is commonly used in the motor, engineering and maintenance sectors as the fuel gas in oxy-fuel sets for cutting, burning and welding. Phil Grace, casualty risk manager at Norwich Union, said: "Acetylene is inherently dangerous, and can
cause asphyxiation, but the greatest risks are those of fire and explosion. "Application of heat or mechanical shock to acetylene cylinders will cause spontaneous internal heating of the flammable gas. The decomposition of acetylene could cause the cylinder to become unstable and even explode.
"When acetylene cylinders are involved a fire, the Fire & Rescue Service will follow a strict protocol - cooling water will be applied, an exclusion zone of 200m will be set up around the site and it may be necessary to evacuate any persons within that area.
The cooling process takes at least 24 hours as movement could restart or accelerate decomposition. "With such potential hazards, businesses must undertake risk management and implement a number of key actions to reduce the risks of fire or explosions associated with acetylene cylinders. "Above all, businesses should consider whether alternative procedures or fuel gases such as propane can be used. If acetylene cylinders are required, the business should consider the implications for business interruption, as the minimum evacuation time is 24 hours should a fire occur. "All employees who use acetylene should be fully trained and understand the necessary emergency procedures. "Where acetylene is used for hot work, flashback arrestors should be fitted to all cylinders. In the use of long length hoses, flashback arrestors should be fitted at both blowtorch and regulator ends. Non-return valves should also be fitted on the blowtorch, which should be checked and replaced regularly. Acetylene should only be taken from the cylinders at the recommended pressure of less than 0.62bar. "Ensure that cylinders are stored and handled correctly. Do not drop or roll along the floor and keep vertical at all times. Minimise the quantity of acetylene kept on-site and return redundant or unwanted cylinders to the supplier without delay. If you suspect a fault on a cylinder, contact the supplier immediately."
