Risk managers must avoid “off the shelf” insurance as court disputes reach new highs

The Mactavish Litigation Claims Index has risen to a new high in 2022, as more businesses resorted to the courts to get their insurance claims paid.

The Claims Index, which uses data on the frequency of High Court claims as a measure of insurers’ willingness to pay out on insurance claims, jumped 14% in 2022 with 82 commercial insurance lawsuits filed against insurers.

The index was introduced due to widespread concerns that insurers were taking an increasingly aggressive approach to the payment of claims.

Anecdotal evidence suggested that as the insurance market hardened in 2019 so too did insurers’ attitudes to claims, many of which were rejected for technical reasons.

This view was largely validated by data from the index which shows the rise in insurance premiums from 2019 was matched by an increase in insurance claims being rejected by insurers and ending up in court.

”Twenty Russian aviation claims were filed on February 23rd this year”

Last year saw a rise in product liability and professional negligence claims. However, the two biggest areas to see a jump in litigation were companies pursuing Covid Business Interruption claims and aircraft companies suing their insurers for non-payment of claims relating to the loss of aircraft in Russia following the invasion of Ukraine.

The data, which tracks claims involving the 20 largest insurance companies in the UK, recorded four Russian Aviation claims in 2022 and seven Covid BI claims. The Covid BI claims included litigation by restaurant chain Pizza Express and a group of Premier League football clubs including Arsenal, Liverpool and Tottenham Hotspur.

While both areas of litigation were significant in 2022, this is likely to be dwarfed by legal claims this year.

Twenty Russian aviation claims were filed on February 23rd this year, the one-year anniversary of Russia’s invasion of Ukraine. The wave of claims filed on a single day was no coincidence as many insurance contracts required the aircraft to have been lost for a year before any claim would be made.

What does it mean for risk managers?

The rise in the index suggests insurers are continuing to take a tough attitude to claims payouts, a feature of the ‘hard market’ the industry has been going through since 2019.

Bruce Hepburn, chief executive of expert insurance buyer Mactavish, said: “The scale of the issue facing insurers and their customers should not be underestimated.

”When you buy an insurance product you expect to be protected from loss, not exposed to further costs”

”The number of lawsuits filed against insurers should not be subject to never-ending inflation as there is little or no evidence that the underlying number of insurance claims is going up.

“Many of these disputes should simply not be going to court. When you buy an insurance product you expect to be protected from loss, not exposed to further costs and delay as you seek to be reimbursed. The process of making an insurance claim should be consensual, not adversarial.”

How can risk managers reduce the risk of unpaid claims?

Before 2019 the number of commercial insurance claims that ended up being litigated each year was relatively stable, hovering around 30 legal claims each year.

However, since then the index has seen a dramatic increase in litigation, with the number of cases filed going up year on year to the present number of 82, a deeply worrying trend.

Hepburn said: “What the market needs to see is a dramatic fall in our Index, to the numbers we were recording pre-2019.

”It should be seen as a clear warning to companies that buying insurance “off the shelf” doesn’t work”

“While the index remains elevated, or worse continuing to rise, there is only one conclusion to draw. Insurers are prioritising their own interests over those of their clients, rebuilding their balance sheets to the detriment of customers who are being forced to seek declarations from court in order to get paid out on claims.“

”The data produced by our claims index is really worrying. It should be seen as a clear warning to companies that buying insurance “off the shelf” doesn’t work, particularly where insurers are being aggressive over their interpretation of policy wordings and rejecting more and more claims.”