Actuarial working party establishes that bodily injury claims cost on motor policies are rising faster than thought

A report produced by the Actuarial Profession’s third party working party has concluded that overall BI claims inflation is now running at about 30%, considerably higher than previous estimates. The study, which had access to data supplied by companies making up 90% of the UK motor insurance market, shows that a third of the increase is due to the higher number of BI claims while the majority of the increase can be attributed to the higher average cost of settling claims. The increases come at a time when the overall number of reported accidents has been falling.

David Brown, chair of the working party, said: “Insurers have felt the effect of BI claims inflation in their recent results. Even though premiums have increased, these findings raise questions about whether they have been increased enough.”

The report highlights the involvement of claims management companies, describing how the growth in claims correlates with the growth in the number of such organisations. It contrasts the situation in England with that in countries such as Scotland, Ireland, France and Germany where legislation has restricted the practice of claims farming.

David Brown said: “It remains to be seen what impact the proposals to address compensation culture through reform of such practices such as no win/no fee in Lord Justice Jackson’s review will have.”

A potential ticking time bomb for the industry is the effect of BI inflation on the adequacy of companies’ reserves. The report found evidence of a mismatch between the inflation shown on case estimates and that seen on settled claims.

At a regional level, the North West comes out as the BI claim black-spot, followed by the North East and Yorkshire. The London area, however, shows the fastest recent rate of growth.

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Enquiries: Tel. Michael Scanlan on 020 7632 1453 / 07798 804 871 or email michael.scanlan@actuaries.org.uk

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