The insurance industry is currently battling with a multitude of uncertainties: Brexit, Ogden, and the impact of technology. Mike Brown, senior partner, and Alistair Kinley, director of policy and government affairs, BLM, spoke to Post about how those issues affect claims.
What are the main challenges that are facing the industry at the moment?
Mike Brown: There is a genuine economic challenge posed to the insurance industry that none of us understand at the moment, which is likely to be caused by the UK’s withdrawal from the European Union. Insurers are already looking at that, most are looking to move to other EU areas and that will have a big impact on insurers in terms of how much they decide to invest in the UK. Insurers are also battling with the aggressive market place that exists in the industry with regards to claims and litigation and the continuation of inflation in terms of compensation inflation. Despite everyone’s best efforts, there is still inflation and it will add up. The claimant solicitor fraternity continue to be inventive around claims and new areas to pursue.
Alistair Kinley: There are uncertainties around the handling of claims and what will happen if insurers have another claims handling function in another EU member state. The reputation of the sector could be improved as there tend to be complaints in the media around dual pricing arrangements and it is difficult to see where that is going. It’s something that insurers and the regulators will need to have a conversation about so that the industry can resolve the issue. Dual pricing is a tough one to solve because pricing is how insurers compete.
What are the biggest challenges that lawyers face when working with insurers?
MB: The pace of change is difficult and insurers are trying to provide products to a market place that is very fast-changing. We see a lot of our insurance customers looking for support from their lawyers but it all needs to happen quickly. The problem is that you don’t have time to stop and think. The challenge for us is that we have thinking time to think about policies and products. It feels like the industry used to work to a five-year business plan and now we’re working to a five-minute business plan.
AK: The question of the pace of technological change is relevant here in terms of issues around the online courts that are going to be introduced and AI that is to be built into processes. There are some big questions that need to be asked and there will be big changes to models.
BLM recently introduced Artificial Intelligence-driven machine learning into its litigation process, what has that brought to the business?
MB: It’s early days and like all businesses that are using AI, we’re learning to what extent the software enables people, as opposed to getting in the way of people. We want to make sure that AI enables the business and gives our customers something. The impact that AI will have in our business is that decisions will be well informed, guess work will still exists but it will be made more accurate by technology.
AK: We need to have an inclusive mind set and embrace new way of working. It is inevitable that we will start using new technology and we all need to have the correct attitude when using it within business.
What are the risks of using AI in the claims process?
MB: The risk is that, if you’re going to use technology and algorithms, you have to make sure that the information and data that you put in at the beginning is correct. There’s a danger of not putting the correct data in. You can spend a lot of money trying to find solutions to everyday problems, but you might end up confusing yourself with it.
AK: Another strand to this is that, as tech becomes more embedded, the software is going to do more analysis and have more autonomy over the claims decisions. Subsequently the experience in the legal team is going to drop because the technology can make all the decisions.
What could be set to become the new whiplash epidemic?
MB: There are lots of things that could be used. For example eyesight, to what extent are our eyes damaged every day as a result of sitting in front of screens? Are employers to blame? The sort of areas could start to emerge in the claims space. It will be interesting to see whether or not mental health issues will start to take over from physical health issues. But we’re are a reasonably long way away from seeing whiplash claims disappear.
AK: Unless you tackle road traffic accidents, there are going to be incidents where people suffer minor injury. The compensation may be different, but that doesn’t mean the personal injury claims will cease to exist. But the way they are presented may change. If the compensation for whiplash is to be reduced, there is the risk that we will see claims of moderate physical damages and considerable mental health damages.
What impact will the Ogden decision have on claims litigation?
MB: The most immediate impact it has had is that everyone has rushed off to their professional indemnity insurers to make sure that they’ve got appropriate indemnity cover given the uplift in damages in some of the cases that we are seeing. Claimant lawyers will be working very hard to retain the uplift for as long as they can and that will come forward to evidence that could change the Ogden discount rate.
AK: We have the prospect of legislation coming in to change the rate. Insurers are positive about this and the government are talking of changing the rate and on one level that is fine, but for me it’s not a given that legislation is going to get through. We have a minority government that has a bunch of Brexit issues on its plate and there will be huge resistance in parliament and in the claims space against the rate change.
As cyber insurance becomes more popular, can we expect to see more fraud being committed in that space?
MB: Wherever there is insurance, there seems to be fraud. In the world of cyber, it does seem to be a very hidden world, the clever criminally minded person can hide behind layers of tech to commit criminal acts. This is a way of fraudulent claiming, I’m sure they will find a way of doing it.
Where are insurers going wrong in the claims process?
MB: One of the problems that insurers have is trying to blend legacy systems and introducing new technology and handling claims. It comes down to the pace of change, this results in tension – how can they retain loyal customers while transforming their processes with new technology. That then leads on to the problem of de-skilling and the war for talent. The questions that insurers need to ask, and lawyers, how can we make our industry one that is attractive to the next generation.
AK: Perhaps customers and intermediaries don’t want to hear too much about the claims process when they buy insurance, because they might not think they have to claim. But it needs to be explained properly. Informing customers on the process is a good way of making sure that customers stay with their insurers.
How will bespoke insurance policies change the claims space?
MB: The concept of being able to buy insurance that covers a particular risk for a certain time at an individual price is very interesting. It could help insurers get tighter and help insurers identify risks and perhaps we can expect that a more tailored policy will lead to less claims.
How can telematics transform the claims space?
MB: It should make claims more accurate. But it would be interesting to find out how telematics evidence will play out in court when trying to support or refute a claim. If you can get great data..
AK: You would think that evidence from telematics would be fantastic but when claims are disputed, all the technology and how the vehicle works has to be tested in court. The question of data sharing, using data from vehicles, really underpins the ideas that we have in the UK for insuring automated driving.
What changes or trends should we look out out for in claims?
MB: A trend which is going slightly unnoticed is that judges in civil cases are becoming tougher. In claimant cases, judges and the government are becoming tougher on fraud.
AK: We could be moving towards the use of fixed legal costs; it started a few years ago in motor and spread to other areas and it makes sense for it to be used in the vast number of cases. It could bring with it more predictability and lead to different way in which lawyers deal with legal disputes.
What can we expect from BLM in the future?
MB: We have created an international network of lawyers who are all recommended by the insurance industry. We have also created, through that network, special interest groups. We now have special panels geared towards cyber security. We have around 12 member firms in the network already and we are collaborating with them. We have adopted this approach because we wanted to create the best of the best for customers and become the go-to law firm. The network is a true insurance specialism group rather than a general one.
AK: One of the things that I am looking forward to getting involved in in the network is looking at the claims space and seeing what customers are facing. As we start getting more familiar with the government through special interest groups I’m hoping to bring our expertise in working on various consultations so that we can represent our clients.
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