West: Claims relating to psychiatric injury can be costly for insurers
The cost-of-living crisis is encouraging “opportunistic” personal injury fraud, with “professional enablers” designing “cynical ‘conveyor belt’ processes” to maximise fake or exaggerated injuries, according to a leading law firm.
Kennedys, which specialises in work for insurers, said the extension of fixed recoverable costs (FRCs) to most money cases worth up to £100,000 in October this year should “in theory” reduce costs, but could also lead to “the inflation of claim values”.
Researchers examined the “key drivers of excess claims inflation” in the personal injury market across 11 jurisdictions for Claims inflation and personal injury claims: a global review.
They predicted that the cost of living crisis in England and Wales would “continue to encourage opportunistic fraud” in 2023, with data from the Official Injury Claims (OIC) portal already showing “clear trends”.
The report said: “We have seen a rise of non-tariff injuries and professional enablers in the design of cynical ‘conveyor belt’ processes to maximise entirely fabricated injuries or exaggerated injuries.”
While accident management companies and claims farmers retained a “vested interest in the exaggeration of genuine claims”, non-injury motor claims were also “fertile ground for fraud enablers with bent metal experts exploiting vulnerabilities caused by vehicles now being awash with new technology”.
Since the implementation of the Civil Liability Act in May 2021 and introduction of the OIC, researchers said some “legal representatives” had “migrated away from motor lines of business towards liability claims, often taking bad practices with them which, in turn, have led to increasing findings of fundamental dishonesty”.
When it came to genuine claims, there was evidence of “claims creep”, where a genuine claim was “inflated with exaggerated psychological injuries”.
Kennedys said increased legal costs, boosted by the updating of guideline hourly rates in 2021, would continue to be a “key driver” of claims inflation.
“Claimant tactics continue to evolve to avoid the strictures of the current fixed costs and budgeting regimes, with increased frontloading of costs and seeking escape from the low value claims portals.”
There was “an apparent unwillingness by the courts to crack down on such behaviour”.
Changes to the qualified one-way costs shifting (QOCS) regime introduced in April this year would restore “some balance for defendants”, but “do little to control costs expenditure for the foreseeable future”.
The report said the impact of the FRCs introduced this autumn “remains to be seen”, although in theory it should reduce costs.
“However, there is a risk of unintended consequences with increased costs associated with satellite litigation and the inflation of claim values in order to drive up the recoverable costs.”
A further “significant” reason for claims inflation in England and Wales was increasing care costs, both for voluntary care provided by family and friends and commercial care.
For non-commercial care, the rates had gone up by more than a third in five years from £7.90 an hour in 2017 to £10.60 an hour in April 2022.
“Commercial care costs for both directly employed and agency care have also been driven upwards by a shortage of carers and the rising cost of living.
“Brexit, the pandemic and a lack of suitable candidates have helped drive these shortages at the very time when there is an increasing demand for care due to the ageing population.”
Amputation claims had seen “super-inflation in recent years”, with the increasing cost of prosthetic devices, often linked to “technological developments designed to increase levels of function for amputees”.
The Kennedys review found that psychiatric injury claims were a recurring theme across almost all 11 jurisdictions.
Richard West, global head of liability defence and partner for Kennedys, commented: “Of particular concern to insurers is the fact that claims relating to psychiatric injury are often associated with considerable awards for damages and high legal costs for investigating and defending them.
“There are also reputational risks for businesses found to be in breach of the relevant legislation.”
He added: “Claims inflation continues to be a priority topic for insurers across the globe.”
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