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For much of 2020 and the start of 2021, the US casualty market experienced a drop in claims. Thanks to a disruption in business as usual and a downturn in the economy, US insurance carriers were seeing fewer losses on the books.

Unfortunately, the environment was a temporary one. Court closures that were widespread amid the early pandemic days are now returning to pre-COVID 19 operating levels, and backlogged cases are being heard. Likewise, organizations are reopening, often with fewer employees or more inexperienced help. The atmosphere is ripe for a resurgence in casualty claims.

Claims indeed did increase, as did the severity of the settlements. Also, claims that had been stalled due to courtroom closures were settled. In November 2021, for a workers compensation injury after she was denied medical benefits¹. In Texas, who was paralyzed in an accident in 2019².

With the increase in claims activity over the last several months, the message is clear: Today’s tort and litigation landscape is and will continue to be challenging going forward. Social inflation – increased claims costs due to worsening legal environment– is putting ample pressure on settlement outcomes as jury awards continue to balloon.

The Need for Reform
Unfortunately, there is little movement among the states to cap jury awards. ³. In four states (Florida, Illinois, New Hampshire, and Washington), challenges to the states’ attempts to cap damages have been successfully challenged, ⁴.

In such jurisdictions, meaningful tort reform may not occur. Absent such action, insurance carriers and companies should expect the litigation environment to continue to be challenging, and that the situation will most likely deteriorate further. The situation is exacerbated by the emergence of third-party litigation financing – the practice of paying a plaintiff’s legal fees and costs to pursue legal action in exchange for a percentage of the settlement or judgment. Such financing allows and often serves as a catalyst for plaintiffs to sue for damages.

This practice, as well as social inflation will only increase the frequency and severity of claims. Also, as the cost of medical care, goods and materials, labor and other services increase, the cost to settle a claim grows exponentially.

Social inflation – increased claims costs due to worsening legal environment– is putting ample pressure on settlement outcomes as jury awards continue to balloon.

Getting Ahead of Claims
Therefore, it is imperative that insurance carriers and companies to take proactive measures to mitigate loss exposures and reduce claims. In fact, no industry or company is immune to potential loss stemming from runaway claim costs. We recommend the following measures.

Risk Control
Companies should be continuously reviewing risk control measures across the organization. Audit risk activities and identify areas of improvement. Look at mitigation efforts post-incident for a deeper understanding of how to avoid any future incidents.

Know
Understand the litigation environment in all the jurisdictions in which your company operates. Monitor legal activity. Stay on top of what is driving legal action. Examine your own operations to identify any potential exposure. Stay current on changes to legislation and review how those changes could impact your business.

Live ESG
Beyond having an ESG (environmental, social and governance) policy, your company should be promoting it within and outside of the organization. A favorable public opinion can stanch the bleeding should litigation occur and having a strong internal focus on ESG governance can help reduce the likelihood of legal action.

Build
Establish and maintain strong relations and partnerships with insurance carriers. When your carrier shares your objectives, you will have a more cohesive strategy for handling claims.

Manage
When claims occur, actively manage them. Have a process in place that includes communication with the injured worker and/or family members, easy access to medical and support services, and plenty of follow up to ensure your worker has the resources needed for recovery or rehabilitation. Know the status of claims, and work with your carrier to ensure claimants are communicated with regularly.

Coordinate Efforts
Should a claim come to litigation, take a team approach to defense. Ensure your defense counsel aligns with the vision of the company, understands the business of the company, has strong experience in litigating high-profile and/or multi-jurisdictional litigation, is open to collaborating with other defendants as well as insurers, and does not have a ‘win at any cost’ strategy thereby foregoing mediation and settlements at the risk of protracted legal battles.

Manage Cost Expectations
Amidst a dynamic social and geopolitical landscape, an inflationary economy, emerging risks and soaring jury awards, insurance costs will continue to rise. Expect those costs to increase, and work with your carrier to do what you can to reduce your own risk portfolio. Review your policy regularly with your carrier to ensure that the limits you’ve purchased are adequate in the current litigation landscape and are increasing, not decreasing.

Meeting the Casualty Litigation Challenge
As the pandemic restrictions continue to loosen, so too will the litigation backlog. As your company returns to full operations, often with new or unskilled workers, now is the time to review your risk management approach as well as your training and employee education.

Putting processes in place to reduce claims, having the structure in place to successfully manage claims, and positioning your company well prior to any incident are critical components to improving claim outcomes. Work with your insurance carrier to understand your risk exposures and to identify areas of improvement. The more you understand your risks, the more prepared you will be to handle and defend any claims.

To learn more about the current claims environment and what you can do, download this file.

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