Over the past few years, the calendar year financial results of many companies have benefited from significant favorable reserve adjustments for prior years. With the general expectation that there is not much left in the way of redundant reserves, the industry has to tackle the following claim issues to ensure continued profitability.
First, it must manage continued increase in claims handling and legal costs due to:
- insureds being named as plaintiffs in more and varied types of claims. The duty to defend adds legal costs regardless of indemnification;
- taxation changes that have increased claim costs (HST in Ontario) and;
- claims-handling infrastructure to meet the 24/7 demand for service.
Second, the industry must manage an increase in indemnification dollars due to:
- The increasingly litigious environment in Canada including the emergence of class action suits and growing damage awards.
- Expanded general, special and heads of damage on claims, increasing potential award amounts.
- The continued erosion of the auto threshold in Ontario and increasing catastrophe costs.
Proactive companies need to consider technology solutions to reduce costs and increase efficiency. Procurement management is also a key cost reduction tool for both ongoing claims and catastrophe support. Vendor incentives to meet specific corporate objectives such as customer service or close times would give vendors more ‘skin in the game’ and produce a better loss result. As another year of thin pricing appears on the horizon, managing loss costs and general expenses will be more important than ever.