Larry Griffin, Claims Team Leader – Professions, Beazley
Social inflation hit hard in 2018 and 2019. As we continue to sort through its effects on the insurance industry, it really drove home the need for sustainable rates, but also new strategies to manage the emerging threats in the claims environment.
While there were dips in certain types of claims activity during the pandemic (including the suspension of most US jury trials), litigation activity is now rebounding. Plaintiffs’ lawyers are advertising heavily again. We expect to see more trials this year and next. There may also be a backlog of potential disputes that were delayed, but not abandoned, during the pandemic.
US jury research firms think the post-Covid-19 environment could present challenges for commercial defendants. Anti-corporate sentiment persists and the use of expert evidence – particularly scientific – is trickier than ever, given our society’s experiences with the pandemic. Nuclear verdicts remain a real threat, with several juries returning outsized verdicts since trial activity resumed in earnest over the last year.
There may be nowhere to run when it comes to social inflation tactics. Even venues that the insurance industry had previously considered more favourable for corporate defendants may be more volatile. For example, consider a bodily injury case arising out of a highway accident in the United States. The specific jurisdiction had historically been perceived as relatively fair for corporate defendants. Although comparable verdicts implied a realistic settlement range below $10m, this plaintiff sought over $40m, citing nuclear verdicts elsewhere in the southwest in negotiations. The plaintiffs ultimately recovered well over $10m from various defendants, well above the range historical verdicts might have suggested. This is an example of how increasingly bold demands by plaintiffs, coupled with more actual nuclear verdicts, can push cases even closer to trial and result in larger settlements.
What does this mean for claims managers and our clients?
First, building a strong relationship between the insured, their brokers, their insurers’ claims managers and defense counsel is more important than ever. However, in this hard market, more insureds may be changing carriers due to renewal terms and capacity issues. Changing insurers can weaken or eliminate historical relationships and increase the burden on risk managers to deal with both a new insurer and, in some instances, much higher deductibles or self-insured retentions.
Working together as a team not only leads to better claims outcomes but strengthens the overall relationship between insurers and our insureds. Insight and advice from insurers helps insureds improve their internal risk management and loss mitigation efforts, improving the loss experience.
At Beazley, we have found it very helpful for claims to interact with insureds, even during the underwriting process. Early engagement helps us better understand our client’s past experience and future concerns and build a working relationship even before we have claims to resolve. It also provides opportunities for insureds to learn more about risk management services and claims insights that may be available.
Second, we need to take a strategic view on cases which could involve large damage claims and jury trials. This can mean being prepared to try a case, but proactively seeking opportunities for an early, reasonable resolution. We have handled several matters in which we were able to settle out our insureds early, but other co-defendants fought on. Some of those co-defendants paid the price in terms of outsized verdicts or settlements.
Whether early settlement or continuing to litigate turns out to be the wiser choice will depend on the circumstances of any particular claim, but working closely with our clients, their brokers and defense counsel to understand the evolving claims environment will help us consistently make the best possible decisions.
Disclaimer: The information set forth in this document is intended as general risk management information. It is made available with the understanding that Beazley does not render legal services or advice. It should not be construed or relied upon as legal advice and is not intended as a substitute for consultation with counsel. Beazley has not examined and/ or had access to any particular circumstances, needs, contracts and/or operations of any party having access to this document. There may be specific issues under applicable law, or related to the particular circumstances of your contracts or operations, for which you may wish the assistance of counsel. Although reasonable care has been taken in preparing the information set forth in this document, Beazley accepts no responsibility for any errors it may contain or for any losses allegedly attributable to this information.