COSTLY, COMPLEX CLAIMS PUT PRESSURE ON PUBLIC LIABILITY

Following several years of speculation on the need to increase rates, growing concerns over sustainable profitability of lines including public liability have led to structured change as the market continues to transition. Over the next 12 months, all eyes will be on rates and the increasing cost and complexity of claims.

KEY TRENDS

  • The anticipated focus will be on rates and the increasing cost and complexity of claims.
  • Underwriters are taking a more disciplined and actuarial approach.
  • Underwriters are becoming more selective about who they offer public liability terms to.
  • Insurers and underwriters are trying to maintain their profitability so we expect to see continued rate increases, restrictions in cover and more.
  • Presenting a detailed claims history and the best possible picture to underwriters will help companies secure public liability cover.

Given the long-tail nature of public liability claims, underwriters are taking a more disciplined and actuarial approach when considering renewals and writing new business. Many are asking for claims histories of up to seven or 10 years, allowing them to review the way in which claims have trended and developed over a longer period of time.


Underwriters have become increasingly selective about who they offer public liability (PL) terms to. Some industry sectors, such as those with high claims volumes or a high density of foot traffic (such as shopping centres), may experience significant rate movements, as well as restrictions in cover and much higher deductibles being mandated.


Over the past 12 to 18 months we have observed premium increases across a number of classes of insurance, (particularly property, D&O and, to a lesser extent, motor). This trend is now being seen to filter out into other classes, with premiums in public liability and other lines rising, irrespective of loss histories or risk profiles. Even businesses that are deemed ‘good risks’ will face more scrutiny and higher costs.


As an example, one Lloyd’s of London market still willing to offer PL terms for riskier industry sectors – subject to proactive risk mitigation practices being in place – recently advised an average annual increase of approximately 14%. Similarly in Australian markets increases of between 5 and 15% are being noted for clients who have a good claims history and stable turnover.

In Australian markets, increases of between 5-15% for clients who have a good claims history and stable turnover are being noted


Even businesses that are deemed ‘good risks’ will face more scrutiny and higher costs

Rates have also risen as insurers have faced deteriorating profitability in liability lines, particularly in the June quarter of this year. However, it is important to note that this is not driven by a higher volume of claims; claims frequency is actually holding steady and rather it is the complexity and cost of claims and their reserves that has become an issue.


The factors driving this are manifold and include legislative change. While tort reform and the introduction of the Civil Liability Act in 2002 have reduced the frequency of ‘frivolous’ claims symptomatic of the compensation culture, they have not reduced the frequency or cost of more severe, legitimate claims arising from negligence. Instead, we are seeing fewer small claims and also bigger claims that take longer to resolve.


Complexities experienced may include the involvement of multiple defendants with different levels of contribution towards the incident, significant injuries suffered by the claimant which need time to settle before expert medical opinions can be obtained in order to determine the impact those injuries have on the claimant’s future, court backlogs and pre-litigation procedural requirements.


Related to this is the rise of litigation (and litigation funding) in Australia and the legal cost this adds to claims. While easier access to the legal system is a positive thing for our society, it does add to the cost of a claim for both defendants and claimants. It also slows the settlement process down – and the longer a claim takes to process, the more expensive it can be.


Underwriters are trying to maintain their profitability in a changing, uncertain world, so we expect to see continued rate increases, restrictions in cover and more. Presenting a detailed claims history and the best possible picture to underwriters will help companies secure public liability cover in this ever evolving market.

Natasha Barker headshot

Natasha Barker

Manager – Corporate

T: (02) 9424 1855

M: 0408 015 839

E: natasha.barker@ajg.com.au

Sources:

Our class-by-class insights for insurers, Taylor Fry, FY2019

Our class-by-class insights for insurers, Taylor Fry, FY2019

Available and affordable: Improvements in liability insurance following tort law reform in Australia, Commonwealth of Australia, December 2006

‘Legislative Intervention in the Law of Negligence: The Common Law, Statutory Interpretation and Tort Reform in Australia’, Sydney Law Review, September 2005