Insurers’ tough approach to the payout of claims pushed the Mactavish Litigation Claims Index to a new high in 2022, as more and more customers resorted to the courts to get their insurance claims paid.
The 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. A wider view of the index, which includes personal injury claims, also rose 14%, to 158.
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 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.”
The Claims Index, which is now in its second year, 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.
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 the 23 February 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.
Mr Hepburn said: “The scale of the issue facing insurers and their customers should not be underestimated. 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.”
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. Since 2019 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 according to Mr Hepburn.
“What the market needs to see is a dramatic fall in our Index, to the numbers we were recording pre-2019,” Mr Hepburn said. “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 legal cases being pursued in court represent just a fraction of the underlying number of insurance claims being contested by companies each year. However the frequency in which they end up in court offers a window into how insurers attitudes to claims are changing.
Until Mactavish introduced its Litigation Claims Index last year there was no measure in the market for how insurers were dealing with claims. Anecdotal evidence suggested that during a hard market insurers not only increased premiums but also took a tougher approach to the payment of claims. Data produced by the Mactavish Index validates this view.