Without savvy claims handling, your cases could go nuclear. Social inflation and nuclear verdicts are driving up insurance costs. Smart claims handling can help keep your claimants happy and your claims under control.
Social Inflation Is More Than a Buzz Word
Social inflation generally refers to rising litigation costs and jury awards.
Costs tend to rise over time, so you might expect claims amounts to increase over the years. However, research shows that social inflation is real.
The American Transportation Research Institute looked at trucking litigation data from 2006 to 2019. Their analysis found that in first five years of data, only 26 cases were worth more than $1 million. In the last five years of data, nearly 300 cases were worth more than $1 million. The increases can’t be blamed squarely on inflation, either, since the size of award grew 51.7% each year between 2010 and 2018 while standard inflation only grew 1.7%. Even healthcare costs only grew 2.9% annually during this time.
Litigation is costing more – a lot more – and it’s not because of rising healthcare costs or other expenses. According to the Insurance Information Institute, very large jury awards – sometimes called nuclear verdicts – appear to be a key driver of social inflation. Class action lawsuits and litigation funding are another likely cause. Tort reform rollbacks may also be a contributing factor, although there’s not a lot of hard evidence for this.
How Much Does Social Inflation Cost the Insurance Industry?
Research from the Insurance Information Institute and the Casualty Actuarial Society shows that social inflation increased commercial auto liability claims by more than $20 billion between 2010 and 2019.
That’s 14% of all losses during that period.
Social inflation is not a minor factor. In some liability lines, it’s a major driver of costs. If insurers want to control their costs, they need to focus on preventing nuclear verdicts and minimizing social inflation.
Strong safety policies can help. If insurers can help their clients put solid risk management strategies in place, they may be able to some losses from ever happening while reducing liability when losses do occur. As insurance rates and social inflation surge, safety best practices are essential – but they may not be enough.
Some claims will still happen. To keep those claims from going nuclear, you need good claims handling.
Poor Claims Handling Can Prompt Claimants to Lawyer Up
Why do some claimants decide to sue?
The obvious answer is money. Claimants sue because they want more money. This is likely a key motivator in many cases. However, it may not be the only motivator. According to a paper published in the University of Pittsburgh Law Review, plaintiffs’ lawyers tend to say that litigation aims include monetary compensation as well as other issues, and plaintiffs tend to say it’s about principles.
When claimants decide to file a lawsuit, they presumably believe that they are not getting what is owed to them. They might think the insurer is giving them the runaround, wasting time, lowballing the payout or rejecting the claim without cause. Maybe they’re right. Maybe they aren’t. Once a lawsuit has been filed, that is for the courts to decide.
Lawsuits can be very expensive. They also bring the risk of nuclear verdicts. Surely, insurers would rather avoid litigation whenever possible. But if claims are handled poorly, the claimant might start to feel that the entire situation is adversarial, and that can prompt them to lawyer up.
Strong FNOL and Claims Handling Processes Can Improve Outcomes
The first notice of loss intake sets the stage for the rest of the claim. We’ve covered before how it’s important to provide effective communication that builds transparency and trust. We’ve also covered how call center empathy is essential. Afterall, claimants are going through a difficult time, and you need to show them that you’re going to help.
On top of that, you need to make sure you’ve got your basics covered. That means providing 24/7 availability, support in multiple languages, and knowledge call center representatives who can actually get the ball rolling and help claimants understand what’s going on.
Savvy claims handling might not prevent all lawsuits or nuclear verdicts. Strong safety practices are still essential. However, it may go a long way in helping.
Learn more about Covenir’s Onshore Insurance BPO services. Frontline Services, Back Office Support, and Customer Communications options. We’re not an extension of your team, we ARE your team. Talk to us today.