The Insurance renewal season is now in swing, especially for lawyers still tied to the October-September annual cycle, generating the usual volume of trade press guidance and warnings.
Broadly the market remains benign this year, without substantial hikes of premiums. Competition and comparisons between insurers is evidenced as much by variations of policy periods and Insurer credit ratings as premium price offers. Work types and practice areas are important factors, but for most firms it is the bare statistics of frequency and numbers of claims which remain the most controlling driver of the availability and cost of their insurance, without much science or investigation of either the subjective causes and likelihood of recurrence of claims, or the amounts of insurers’ outlays.
The quality of handling and resolutions of claims is accordingly much less significant to future insurance costs than firms’ capability to avoid them in the first place.Yet somehow, the key messages and lessons linked to understanding and reduction of the causes of claims, and the direct financial benefits that can bring, still seem to be relegated behind other headlines of (mainly regulatory) risk management and insurance supply. Information security and ‘Cyber’ risks, for example, have been the subject of many column inches in professional trade media, with abundant cautionary tales and warnings about the additional costs of insuring against them; but the proportion of insurers’ aggregate outlays directly affecting premium levels is still relatively low, and probably not a significant driver of premiums, up or down, at the moment.
The most practical and attention-demanding news is that there has been at least some research into the causes of claims, with results and indications which could and should enable a useful league table of primary causes. There is however need and scope for something much more comprehensive and coordinated, with endorsement and publication by professional Bodies, Government and the Insurance industry itself, because it would cast vital perspective on the priorities as well as costs and dimensions of risks management and risk transference.
Anecdotally, most claims practitioners would probably expect file disorganisation and diary errors to be the leading cause of claims, at least numerically if not in terms of values lost; but modern IT processes and systemised procedures have reduced the proportion of exposures arising from practical mismanagements of that kind. Rather, the research to date shows that there are at least two other claim triggers which also demand close attention from top to bottom of every managerial chain:
Poor communication between professional service suppliers and their clients: Omissions, inaccuracies and obfuscations of information - about rights or opportunities; costs; processes; deployments; and projected aims and outcomes - time and again set the scene for client disappointment at best, and sometimes real or even catastrophic losses.
Inappropriate skills deployments: Professionals who take on work, or allow ‘mission creep’ of their engagement to extend to areas of work for which they, or more often their assigned employee/s, lack the experience, resources or expertise to do to a reasonable standard – which these days often means they will be judged against quite a specialised standard.
A third factor which also deserves much greater attention within every firm than it probably tends to be given at the moment is under-budgeting. Every service supplier faces pressures to win work by offering to do it for less than it probably should cost. Sometimes that can be commercially sensible if the values at stake are tolerably low; but time and again, the relative risks are not measured, properly if at all, and nor are they sensibly compared. Failure to appreciate the full range, or most particularly the value, of the risks and pitfalls of a new task before it is taken on remains the real cause for hindsight regret underlying many claims, and real improvement on that score is where most gains or savings are likely to be achieved.
Mike Willis is Director of F Mike Willis Ltd, professional risks solicitors.