Insurers face psychiatric injury challenges as claims inflation bites, Kennedys finds

Psychiatric injury is one of many challenges that insurers face in the global personal injury market as inflation puts pressure on costs, according to Kennedys.

The global law firm recently issued a report based on examinations of the claims experiences of its lawyers in England and Wales, Scotland and Northern Ireland, as well as Australia, Chile, Denmark, Hong Kong, Ireland, Singapore, Spain, and the US.

The main causes of excessive inflation on personal injury claims were examined in the 11 jurisdictions and psychiatric injury claims were a recurring theme.

Richard West, global head of liability defence and partner for Kennedys, commented: “Of particular concern to insurers is the fact that claims relating to psychiatric injury are often associated with considerable awards for damages and high legal costs for investigating and defending them.

“There are also reputational risks for businesses found to be in breach of the relevant legislation.”

Focusing on England and Wales, the report listed amputation claims as another factor that contributes to excessive claim inflation.

Even in the absence of technological advancements in prosthetic devices, insurers are seeing price increases of between 5% and 8% per year for the same products. This trend is being caused by a combination of UK general economic pressures and a lack of industry competition.

Increases in legal fees are also contributing to claims inflation in England and Wales, while claimant tactics continue to evolve to avoid the strictures of the current fixed costs and budgeting regimes, according to the report.

Rising care costs are another major contributor to claims inflation. Both claims for non-commercial care voluntarily given by family and friends and claims for commercial care necessary in more complicated cases have been affected by this.

The report highlighted how many of Kennedys’s lawyers around the globe reported a sharp rise in the cost of care due to shrinking labour supply, insecure contracts and rising wages.

The report said: “As a result, not only are defendant insurers in many jurisdictions paying a premium for care services beyond what has traditionally been allocated, but there is a greater risk of significant delays in the resolution of these high-value claims whilst the parties search for and obtain the care and accommodation required.”

West added: “Claims inflation continues to be a priority topic for insurers across the globe. Further, rising premiums place the relationship between insurer and insured in a potentially precarious position, risking insurers either seeking to change providers or reducing the level of cover purchased.

“This increases the risk of challenges to the cover provided or, more commonly, to instances of underinsurance. This can leave the policyholder unable to cover the full losses claimed and make them susceptible to the ‘average rule’, reducing the recovery further.

“Ultimately, without careful mitigation strategies in place and regular communication between insurers and their customers, we predict that the current protection gap in the global personal injury market will widen.”

Image: © BlackJack3D via Canva

Mark Dugdale