Insight

Top claim trends for Insurance Companies and how they might impacts firms in 2023

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The majority of claims seen by Howden’s Insurance Company team continue to relate to bad faith in the US and regulatory investigations. However, over the last year we have seen an increasing number of Employment Practices Liability and Cyber notifications.

  

Here we look at these claims trends and explore what the future holds for 2023 and beyond.

Undoubtedly, the regulatory environment underpins a number of the trends outlined below and remains a key risk for regulated firms. Insurance companies in particular have been in the sights of regulators for some time. This certainly looks set to continue as we go through 2023 with the implementation of the FCA’s Consumer Duty and regulators’ increasing focus on culture and non-financial misconduct.

Environmental, social and governance

As regulators gear up for more stringent policing of environmental claims, greenwashing remains a mis-selling and investigations risk for insurance companies.

Sustainability is undoubtedly the right way forward for 2023. But in adapting to the necessary ESG remit, regulated entities will face new and increased exposures – and this will have implications for insurance.

The FCA set out its ESG priorities and strategy for positive change in 2021, and has taken a more proactive approach since with its climate-related disclosure requirements, bringing life insurers, asset managers, pension providers and standard listed companies into its scope. It produced its first climate-related financial disclosure report in July 2022[1] and acknowledged that insurers are at an early stage in defining best practice on target-setting in the Net Zero race, but underlined they have an important role to play in enabling capital flows towards green infrastructure and carbon removal.[2]

The launch of the Net-Zero Insurance Alliance (NZIA) Target-Setting Protocol signals a move from commitment to implementation. The Target-Setting Protocol will enable NZIA members to independently set science-based, intermediate targets for their insurance and reinsurance underwriting portfolios. The members have committed to transitioning their insurance and reinsurance underwriting portfolios to net-zero greenhouse gas (GHG) emissions by 2050. It requires the members to set and disclose their initial targets by July 31, 2023.[3]

Insurers are increasingly committed to the environmental debate but it is equally clear that firms which offer products that claim to be sustainable, without evidence, will suffer consequences.

Whilst we have not seen an increase in specific ESG claims during 2022, we do expect the constantly evolving regulation relating to ESG to influence claims going forward.

Cyber

Cybercrime continues to be a prevalent issue. According to the Bank of England’s 2022 Systematic Risk Survey, 72% of executives in the financial sector believe there is a big chance of a high-impact cyber-attack in the sector in 2023 – and 74% see cyber-attacks as the biggest risk in their industry.[4]

Received wisdom is that the war in Ukraine has led to a reduction in ransomware attacks outside of the impacted region as bad actors focus on the conflict. Nonetheless, cyber hacks remain a steady source of claims Aon[5], Davies Group[6] and Kingfisher insurance[7] amongst others all suffered attacks in 2022. The volatility of the situation makes it hard to predict what is in store for the rest of 2023, but for the short term at least, we can expect more of the same.

Social engineering

Social engineering is an umbrella term used to describe circumstances in which individuals are duped into paying funds to the account of a fraudster. The most common methods of perpetrating this fraud are to hack into email accounts, or to impersonate a senior member of staff and apply pressure to make a transfer quickly.

Despite detailed training programmes, advanced account checking procedures and a steady stream of news stories warning about the real and present threat of online fraud, social engineering remains a source of significant losses. We consider this will remain a significant risk for 2023 as criminal’s attempts become more sophisticated, resulting in large claims.

Large Employment Practices Liability claims

Expanding ESG beyond the ‘E’, and perhaps related to the #metoo and #BLM movements, 2022 was certainly the year of the large EPL claim in the UK. Whilst large compensation payments are common in the US, last year was the first year in which we have seen a number of UK financial institutions making payments in excess of £1m to individuals alleging discrimination and other employment-related wrongs. Regulators also continued to crack down on non-financial misconduct.

Bad faith

After a few quieter years for large bad faith matters, 2022 saw the return of some significant claims, and we predict more for 2023. Unexpected jury decisions, a savvy plaintiff bar and increased involvement of litigation funders are three reasons which led to multi-million-dollar matters. We will shortly be publishing our detailed review of bad faith issues for insurance companies. Please contact us to request a copy.

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