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Towers Watson: Economy Pushing Claims Costs Higher

Source: Towers Watson

Posted on 22 Feb 2010

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The fourth installment of Towers Watson's Property & Casualty Claim Officer Survey focuses on the impact of the economic climate on claim operations -- including loss costs, litigation levels, expense management and expense-related claim performance metrics. This ongoing series of property & casualty claim officer surveys, introduced in 2007, highlights topics identified by survey participants as critical to successful claim operation management and performance.

Economy Impacts Claim Loss Costs

Survey respondents consider the economy a relevant factor in rising claim loss costs. With the exception of workers compensation (WC), claim frequency and severity were reported either as unchanged or on the rise for most property & casualty lines of business. For personal lines, claim frequency, severity, fraud and litigation all reflected increases, creating clear adverse pure premium indications. While 52% of companies reported a drop in WC claim frequency, half noted an increase in claim severity, creating uncertainty in the overall loss cost outlook.

Litigation Trends Vary by Region

The poor economy also seems to stimulate third-party losses, as a number of respondents reported increases in general liability and personal automobile litigation. In general, respondents saw either no change or increases in new litigation, and virtually no respondents say they expected any decreases in litigation for any line of business as a result of the economy. While the percentage of carriers that expect increases in new litigation varied by coverage, the direction of the change was clear and consistent.

Geographically, the percentage of carriers reporting increases varies widely by region. The Southeast has the largest percentage of carriers reporting increases in new litigation, followed by the West, where a moderate percentage of carriers indicated increases.

Claim Operations: Across-the-Board Response to Expense Management

Clearly, companies are working to manage expenses, but have been prudent by not risking long-term performance for short-term gains. Legal expenses are receiving the most scrutiny, and appropriately so, since they are very often the largest component of claim expenses, among the toughest costs for claim departments to effectively manage and most significantly influence loss costs. Allocated loss adjustment expense costs beyond legal are also receiving significant attention. Performance Metrics Focus on Expenses

Respondents cited expense control, a major driver in 2009, as the fastest way to positively impact bottom-line results. Despite cost pressures, carriers have not slashed expenses or acted on other knee-jerk responses. Instead, they appear to be taking measured steps to control their costs. While companies still rely primarily on lagging indicators when measuring claim department performance, respondents are moving toward using both lagging and leading indicators.