Avoid These Global Claims Hotspots, Aon Warns Insurers

With increases in fraud and legal fees spiraling upward, insurance carriers will need to deal with a growing number of claims burdens globally in 2009, executives of insurance broker Aon said, pointing out five claims hotspots in the New Year.

Issues such as environmental threats, terrorism and product recalls shaping the claims landscape for clients in the United Kingdom are also global challenges, Aon executives said. These concerns will test the adequacy of policy coverage and the willingness of insurers to pay claims for the emerging and potentially costly issues.

Aon warned insurers to brace themselves for five top claims hotspots:

• Higher claims costs due to legal fees, credit hire and referral fees driving premium increases.

• Increased fraud as the recession takes hold, leading to delayed claims settlements and greater bureaucracy.

• New sources of liability from unexpected exposures, such as emerging and unproven technologies including nanotechnology, more product contamination issues and liabilities from financial derivatives.

• More extensive environmental pollution claims as environmental awareness increases and, in the United Kingdom, with the implementation of the Environmental Liability Directive.

• Terrorist/piracy attacks affecting commerce worldwide and possibly stifling trade.

“2008 was characterized by the rapid onset of a major global recession and the impact is spreading in terms of claims trends in 2009,” John Bell, head of claims for Aon’s commercial insurance team in the United Kingdom said in a statement. “There is a growing possibility that any financial loss may be pursued against directors who are considered to be at fault and individuals are less well off so may be tempted to make fraudulent claims. However, this comes at a time when insurers are less inclined to take a sympathetic view to paying even legitimate claims.”

He added that the increased cost of resources needed to respond to more claims and the cost of payments will be transferred back to businesses through increased premiums. “[Businesses] need to keep risk awareness at the top of their agenda so brokers can show insurers that their clients have identified risks and have plans in place to reduce or manage them. This means insurers will be more likely to respond positively in terms of pricing,” he said.

Mr. Bell said that clients need independent claims advice to make sure that valid claims are paid swiftly. “Struggling businesses should not have claims delayed by insurers switching to investigate every claim as fraudulent and introducing added complications to this crucial process.”

Neil Harrison, deputy group managing director of Aon Global Risk Consulting said in an e-mail comment that “The claims hot spots identified for United Kingdom companies provides a useful guide at a global level. From a U.S. perspective, Aon anticipates the usual recession-related uptick in claims costs associated with workers’ compensation and fraud, and the now established focus on costs arising from natural catastrophes as the two items which will likely demand the most attention from risk managers and claims managers.”

He said that Aon also notes the availability of “cost-effective pre-loss and post-loss mitigation techniques to assist organizations in their response to these two challenges.”

Aon, he concluded, is urging clients to continue to focus on prevention and planning as the most effective methods to protect balance sheets and assets.