View from America - State of things to come

Learning from the experience of the US liability market could save UK insurers millions. But, as David Fanning reports, warnings from the other side of the Atlantic are being largely greeted with scepticism

Are UK liability claims departments taking on board the signal lessons to be learned from their US colleagues' experiences?

It would appear not. "It's all been hyped up," says one UK composite insurer's claims manager. "Look at mould, for instance. Loss adjusters and specialist restorers were running around saying that UK insurers were going to be inundated by mould-related claims, and that this was 'the next asbestos'. What's happened? Hardly anything."

Regrettably, this attitude is not uncommon among some in the UK claims management sector. If it prevails, it could ultimately prevent strategic and tactical action to identify and prepare for growing areas of liability and expensive litigation.

Grover Davis, chairman and chief executive of adjuster Crawford & Co, reports that the biggest cause for concern among US insurers is the continuing growth of class actions. "What's going on in the class-action arena is one of the hottest topics around," he explains. "There's been a spike in lead paint cases and these are going to escalate. Also, increasingly, cases are being won in tobacco-related litigation.

"The latest issue surrounds medical devices and pharmaceuticals. What is now showing up on the horizon, as well, is litigation arising from genetically-enhanced products." He says the "frenzy" surrounding mould is tending to die down, although there are still many claims in the system.

According to Mr Davis, there is no sign that the compensation culture is fading. "I find that it depends on the area of the country in which a claimant lives," he explains. "It is particularly the case in the southern regions, where people have a strong belief in their entitlement to whatever's going. To improve things, we need a culture change - and that can only be driven by a legislative change."

Given the differing legal position in individual state jurisdictions, US claimants are seeking out the most favourable area in which to bring claims and launch cases, says Mr Davis: "There is a groundswell among carriers to argue for reform to the tort laws in different states, and opposition to the legislative position in many states is intensifying." So much so, he adds, that many insurers are taking a proactive stance and urging their fellow carriers not to do business in those states identified as unfavourable to insurers.


Crawford's president of international operations, Jeff Bowman, says that rehabilitation is a major concern for US and UK insurers. "In Britain, clients are adopting the US workers' compensation insurers approach: getting employees back to work as quickly as possible."

UK legal observers, such as the Master of the Rolls, Lord Phillips, believe that a lot more has to be done before UK practice comes anywhere near the US standard. Lord Phillips says that the UK per-capita spend on accident victims is twice as much as in the US, and argues that rehabilitation is the "most important element" in containing the soaring costs of employers' liability insurance.

Over his three decades in the business, reports Mr Davis, insurer/worker relationships have changed dramatically. "It used to be very much adversarial. The approach now, though, is very different.

"Carriers want to get the injured employee up to maximum health and back to work. They're paying additional money to employers for healthcare management, and ensuring that most employers have return-to-work plans. The effort is being made, and insurers now have the correct mindset."

He argues that there are a number of straightforward ways in which UK insurers can limit their exposure to liability claims and reduce the cost of dealing with them.

"Fraud prevention and detection is the most obvious step. The basic elements are already there in the UK, but more insurers need to establish protocols in their claims processes to flag up potential fraud."

In his judgement, controlling claims costs is vital, and he points particularly to the appointment of experienced and reliable contractor panels as a way of both maintaining the good name of the insurance carrier and regulating the expense of meeting claims.

He sees outsourcing as a valuable tactic, allowing insurers, particularly companies and underwriters, to change fixed costs to variable ones.


UK claims managers cannot afford to be reluctant to learn from the lessons coming out of the US. Those who insist on burying their heads in the sand should do so at their peril.

There is powerful evidence that UK claimants are becoming no less litigious and mercenary than their American counterparts.

"US claimants are no more compensation-oriented than those in the UK," says one UK adjuster. "It's just that there are more of them and that US courts routinely make larger awards than those elsewhere." If the US insurance carriers succeed in their burgeoning campaign to bring individual states into line with one federal tort law, then the differences should diminish.

The most important lessons to be learned from the US are that a strong and continuing commitment to rehabilitation will pay off - although UK insurers have some way to go before they emulate their US counterparts - and that fraud detection and prevention are vital precautions.

As for what's coming next, genetic modification is a hot potato in Britain, and the Government's 2003 public debate, chaired by Professor Malcolm Grant, Provost of University College London, recognised that manufacturers were apparently unwilling "to accept liability for contamination or any other ill-effects of the technology". Equally, insurance companies refuse to cover any GM-related risks. On balance, however, underwriters believe GM-based exposure is unlikely to cause sleepless nights.

In the US, industry experts point to another potentially substantial area for litigation: lead paint use and exposure. Given that, at one time, virtually every baby in Britain slept in a wooden cot covered in paint containing lead, the scope for litigation arising from toxic lead exposure may be huge.

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