Unpacking 2019 specialist risk

SHA Specialist Underwriters recently hosted a presentation and panel discussion with their team of experts to unpack the findings from their 2019 specialist insurance review.

Topics for discussion at the event included litigation trends, product recall, employee injuries and Compensation for Occupational Injuries and Diseases (COID), professional negligence and the resulting impact on specialist insurance. Claims data across all SHA’s lines of business was also shared.

General claims trends

“There seems to be a general sentiment in South Africa, and in many other developed insurance markets, that the frequency as well as severity of both professional indemnity and liability claims are increasing at a substantial rate. Market trends are pointing towards the risk landscape becoming more challenging in the years to come for these two classes of business,” said Janine Janse van Vuuren, Executive Head of PI and Liability Claims at SHA Specialist Underwriters.

According to SHA’s 2019 Specialist Risk Review, between 2016 and 2018, the average value of intimated liability claims expanded by over 100%, from R557 000 to R1.25 million. The total value of capital settlements on liability claims during this period has also grown by 42%. The results from older data are even more startling, with the annual liability claims payments shooting up by 190%, from R59 million in 2013 to R171 million at the end of 2018.

The intimated values for personal injury (slip and trip) claims, for example, have risen from R172 600 to R270 690 between 2016 and 2018. This essentially means that individuals who sustain injuries on an insured’s property, now claim over 56% more in damages then they did two years ago. Even more notable, the average intimated claims for product liability surged from R1.65 million to R14.75 million. The frequency of claims intimations in both these categories has also increased exponentially.

One category that bucks the trend is the arena of property damage – the average for intimated claims where the third party is claiming for physical damage to property damage has remained relatively flat at around R1 million for the past two years.

In terms of the total claims that were paid, professional indemnity and liability policies paid out a combined sum of around R276 million in 2013, which went from R360 million in 2016 to R440 million in 2018, which reflects a total increase over the period of 59%.

Behavior evident in claims data

“Claims for pain and suffering are becoming progressively larger and are often inflated, while claims for future loss of earnings tend to be exaggerated. In the arena of personal injury claims, a trend of spurious and even fabricated claims is also emerging,” said van Vuuren.

“The rise in frequency of claims confirms the observations that consumers have become more aware of their rights, the legal remedies available to them, and the amounts they stand to gain in the event of a liability suit going to court. This, coupled with a tough economic climate, is driving the behavior evident in our claims data,” emphasised van Vuuren.

“In summary, the trend in claims intimation and settlement values is following an upward trajectory, as a result of the litigation behavior, claims inflation, a tougher economic environment, currency weakness and an increase in risk exposure,” she concluded.  

Toughest year for liability insurance 

“Broadform liability insurance is on the verge of a major shift in South Africa. Premiums have generally declined in the space over the past decade, which is largely due to an over-supply of capacity and a fiercely competitive market. A rapidly evolving risk landscape is however set to change all of that,” said Manisha Chiman, Executive Head of Liability and Underwriting at SHA Specialist Underwriters.

“It is worth noting that 2018 was one of the toughest years for liability insurance in SHA’s experience. This is not only as a result of the Listeriosis crisis, but also because there were a number of cases that reached maturity in this claims cycle. The food and beverage industry appear to have been particularly hard hit with new risk exposures. To this end we have seen a marked increase in policy enquiries from clients in that sector,” continued Chiman.

“The intimated value of the average claim under a broadform policy has jumped from R557 000 in 2016 to R1.25 million in 2018. As a category on its own, product liability has probably seen the biggest increase in claims severity. The average claim for product liability in 2016 was about R1.65 million. By 2018 this had shot up to R14.25 million,” added Chiman.

Other interesting findings

Risk management is another important factor that is not receiving an appropriate level of attention in the market. According to the survey, only 44% of businesses conduct their own quality control audits, 43% ensure that their supplier and client risks are managed through adequately worded contract which clearly outline responsibilities, and 36% confirm that their suppliers have sufficient liability cover.

“It is worrying to see that only 57% of professionals currently have PI cover in place. It is also concerning that almost a third of professionals do not keep formal systems in place for tracking incidents. SHA’s claims statistics also show that the cost of litigation against professionals has become substantial. For each architect that had a claim against their PI policy, the average intimated amount was around R1 million while the average claim size for attorneys was about R3.7 million. Most shocking of all, the average PI claim against an engineer was R13 millon,” added Malcolm Padayachee, Managing Executive of Professional Indemnity & Liability at SHA Specialist Underwriters.

According to Dave Honeyman, Executive Head of Accident and Health at SHA Specialist Underwriters, around 36% of business leaders have dealt with workplace injuries that were covered by COID. However, claiming from COID still seems to be a challenge for employers. The survey showed that 49% of businesses that submitted claims to COID in the last three years, complained about long delays. Around 76% of these businesses had to pay upfront for immediate medical treatment of injured employees and 24% of companies reported they suffered notable financial losses resulting from an incident.

“One finding from the survey that is particularly alarming is that 52% of brokers indicated that they did not have an awareness of the difficulties their clients are experiencing with COID. It is vital that brokers familiarize themselves with the COID Act, the implications of non-compliance on the part of the client, as well as the structure that can be used to assist clients,” he said.

Change factors within our collective control

In his conclusion, Simon Colman, Executive Head of Digital Distribution at SHA Specialist Underwriters said, liability risks have deteriorated, claims quantum and frequency have increased, and costly litigation has become the norm.

The only way for business and professionals to remain protected from their specialist exposures, Colman said, is to change the factors that are within our collective control.

“For business, this will mean adjusting spending, prioritizing the purchase of adequate risk cover and implementing better risk management protocols. For the insurance sector, it means making a concerted effort to improve awareness through education and keeping an eye on movements in claims trends that may only be minor tremors today but could evolve into seismic shifts tomorrow,” he concluded.

Editor's thoughts:
As pointed out, the data from this year’s review has painted a clear picture of what the specialist risk market can expect to see in the coming years. Use the review as a catalyst for conversations and insights as your organisation prepares itself for the 2020s and beyond. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za