Commercial insurance claims frequency and severity anticipated to rise throughout 2023

Claims across all business lines are set to increase in frequency and severity over the next 12 months due to the coalescing forces of a number of macro factors, including but not restricted to recessionary pressures, and growing geopolitical instability.

This is the view of law firm, Browne Jacobson, whose grim predictions of the key trends in insurance claims for the market forecast a number of noteworthy developments throughout the year.

Jonathan Newbold, head of financial services and insurance, commented: “Last year it felt like the market might stabilise, with Covid19 seemingly in the rear-view mirror. What we have found, however, is that a number of other pressures have coalesced to create an even more volatile environment. More so, this impact is not limited to one or two lines of business, but seems to be have cascaded throughout the whole claims market – though often in different and multifaceted ways.

“Our findings show that flexibility will be key if insurers and self-insured corporates are to navigate the ever-changing claims landscape. Standing still is simply not an option.”

Rising claims numbers in detail: (Source: Browne Jacobson)

• Financial Lines: An increase in the ‘unbundling’ of professional services driven by clients’ desire to limit retainers as a cost control pressure is anticipated. Such claims will be influenced by the 2022 Spire Property Development v Withers case, where the extent to which the professional has assumed a wide duty to the client will be a key battleground.

• D&O Liability: Increasing litigation, alongside a proliferation of new regulations – particularly ESG and climate-related – will continue to cause issues for directors and their liability insurers. A global recession typically leads to an increase in D&O claims. It is predicted that corporate insolvencies are expected to increase by 19% next year, this is likely to lead to an increase in litigation against companies and their directors by shareholders, insolvency practitioners and employees.

• Property: A continuation of Covid19-fuelled BI litigation, in the wake of the FCA v Arch test base, will be a prominent feature throughout the year. Claims inflation will also be a significant influencing factor, driven by supply chain delays, labour shortages and rising costs.

• Casualty: The US has witnessed a growth in so-called ‘nuclear’ verdicts, which are likely only to escalate in 2023. This is largely fueled by social inflation – which increases the risk of multi-millions dollar verdicts and pushes defence costs higher.

• Aviation: Russia’s invasion of Ukraine and mass seizure of aircraft has led to numerous disputes between aviation leasing companies and their all risks and/or war risks insurers/reinsurers, with claims running into the billions.

• Fraud and cyber crime: The value of claims suspected to be dishonest and grossly exaggerated is on the rise. Increased focus will be on using intelligence tools and conventional surveillance to prove the dishonesty in these cases. The inexorable rise in criminal activity (by state and non-state actors) and regulation (eg. concerning data protection) creates ever increasing risks to consumers.

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