The 6 trends affecting risk management that you must consider – claims culture

This is one part of our white paper – The six trends affecting risk management that you must consider

 

 

You only have to walk into a regional shopping centre around the country to find a stall set up asking “have you suffered an accident at work?” to understand that there is an ongoing risk of the compensation culture spiralling out of control. Whilst the proliferation of TV or and radio “no win no fee” adverts seems to have died down, there is a strong sense among risk and insurance managers that we still see too many claims and, critically, too many spurious allegations.

In the UK, thankfully, we have got nowhere close to the hugely litigious society in the USA – thanks in part to our pragmatic and balanced court system with limits on damages and the intent of restoration of state rather than punitive damages. The cultural problem is worse in Ireland though, where the court system is more favourable than that in the UK. For example, we see defamation cases, which are not so prevalent in the UK but are a big issue in Ireland, and settlements can be in the £10,000s.

If you are to Google “slip accidents”, the top results tend not to be best practice advice on how to reduce accidents, but instead, claimant solicitor firms seeking to encourage people to make personal injury claims. From members of the public claiming to have slipped over and leaving it years before making the claim, to gangs of staff who

each in turn make similar claims, there is a propensity to claim which requires strong, decisive action to alleviate.

The discount rate – the mechanism for how interest is calculated on injury settlements – has been in the news in recent years having been made more favourable to claimants but subsequently adjusted down to a more sensible level.

We have also seen some positive changes in the regulatory environment around claims. For example, the Jackson reforms, which meant that lower value claims could be dealt with more swiftly and therefore at a lower cost by introducing fixed recoverable costs of claims of up to £25,000 in value. This led to claim costs, which had been spiralling out of control, falling in the attritional claims which make up the bulk of personal injury claims in the UK.

Nonetheless, we are still seeing a large number of claims coming through, particularly in the space of slip accidents. For example, slips cause three times as many claims in the retail sector as the number two cause:

If businesses are unable to successfully defend claims, it tends to be because they don’t have the required evidence to do so. This is likely to perpetuate for businesses that become known as a “soft touch”. Those that will pay out, for example, some vouchers or small amounts of cash as a result of a claim just to try to get it off the books are likely to be seeing more and more people coming after them. Because in this world of social media, news like that gets around.

Conversely, companies that have the courage to defend claims and take them all the way to trial, are less likely to be targets for this kind of spurious claim. Recent examples of successful defences for slip claims on nightclub floors will no doubt put off potential claimants from pursuing the same unless they feel they have a very strong case indeed.

Many people who are less informed will respond “it’s okay because our insurance covers the claim”. Of course, to some extent this may be the case. For example, I was speaking with a broker recently who looks after a business that manages council owned swimming pools and leisure facilities; their excess is a mere £1,000 for every injury claim that comes in. However, in one of their 40-odd venues alone, they’re sitting currently on reserves of almost £100,000. So whilst this may only have hit them in the pocket directly to the tune of perhaps £5-10k, if we assume there have been 5-10 claims, the bill to the insurance company will be much larger and of course this will affect the renewal terms and price that this organisation is able to achieve the next time they seek to get insurance cover.

Companies should seek to put in place robust safety procedures to prevent accidents in the first place: if you have no accidents then you will have no claims. This should, though, be rigorously documented to provide evidence in the event of any claims. For example on slip accident claims, often the evidence is very limited indeed (no slip test results, no detail of a cleaning regime, perhaps no cleaning check sheets), so this puts the defendants on the back foot.

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