This has been a torrid few months for many businesses that have had to navigate their way through many challenges, both created and magnified by the global pandemic. From completely halting normal business activities, to moving to remote working and managing employee issues. From furloughing staff to protecting their health and wellbeing, the world of work has completely changed in 2020. In this episode Beth Diamond, Beazley’s Group Head of Claims, discusses how companies have been dealing with this global shift and how it has been impacting insurance claims.Support the show
Speaker 1 (00:00):
Hello, and welcome to this Beazley podcast on building business resilience in the current global climate. I'm Sarah Griffiths. This has been a torrid few months for many businesses that have had to navigate their way through many challenges, both created and magnified by the global pandemic. From completely halting normal business activities, to moving to remote working and managing employee issues. From furloughing staff to protecting their health and wellbeing, the world of work has completely changed in 2020. To discuss how companies have been dealing with this, and how the global shift has been impacting insurance claims, I'm joined today by Beth Diamond, Beazley's Group Head of Claims. So I'd like to begin by asking you how are businesses being affected by the pandemic and what are the main issues we're seeing that they have to deal with? And also, how are they responding to these issues?
Speaker 2 (00:54):
Hi Sarah, great to be here today.
We’re already starting to see companies making tough decisions around the shape of their business model, employment issues and the health and safety of their staff. For many of them they're asking themselves, how do we stay resilient in this environment? And we're seeing companies starting to evolve. At the same time that the companies are dealing with the global pandemic they're also facing this new uncertainty of a recession. There's a yin and a yang: on one side the business is trying to stay relevant and then on the other, they're trying to adapt. Some of the companies have adapted quickly, but adaptation on the fly brings the potential for a host of new risks and possible litigation. A good example of something we've seen quite recently is the real increase in demand for digital health services and remote consultations. We're starting to see the area of virtual event space grow as well.
Speaker 2 (01:51):
Now, what we know is that in our experience there tends to be an uptick in litigation across the board when you're seeing economic issues. And you're seeing companies at the same time, quickly trying to adapt to the economic climate in which they find themselves. So this is more than just bankruptcies and layoffs. The changing world means changing customer needs and for companies to survive, they need to adapt, but they also need to be mindful of the risk profile and risk mitigation techniques as they are adapting. Even without a pandemic and without a recession we know in the current environment, there is the pressure of social inflation and that is negatively impacting companies. We've already seen an increase in the frequency and cost of claims because of social inflation.
Speaker 1 (02:42):
Thanks Beth, can we talk a bit more about social inflation? What does it mean and what is the impact that we're seeing?
Speaker 2 (02:50):
Social inflation refers to the rising cost of insurance claims resulting from increases in litigation and broader definitions of liability. What we're seeing is an increasing number of cases playing on the emotions of the jury, encouraging a more plaintiff friendly jury verdict and larger awards. In just the healthcare arena, for example, the most recent ASHRM study shows that large US healthcare claims are increasing by 16%, just from the 2013 period to the 2016 period. And what we know is those numbers have only been climbing much higher since 2016. These spiralling damage awards have a further impact on insurance and that's because insurance needs to be priced appropriately to meet what the risk is. For insurers to stay solvent they have to be able to have proper pricing, so they can then stay here, be solvent and be able to serve their customers for the long term. So social inflation is a problem for insurers, but it's also a problem for policy holders to want affordable and readily available coverage. Now we've seen social inflation largely in the US, but it's not unfortunately limited only to the US geography. We're seeing it spike up in places elsewhere, Canada, Australia, Europe, and more.
Speaker 1 (04:12):
Yeah, that's really interesting what you've said there about geographies. How about sectors? Are there specific sectors that you're seeing social inflation have more of an impact and are there any specific industry trends?
Speaker 2 (04:25):
Social inflation affects many sectors. Healthcare is one of them. And with healthcare institutions, we see jurors think of them as big business/ faceless institutions with deep pockets. Another sector is architects and engineers and their plaintiffs are using the so called reptilian litigation tactic to create an emotional pole. They want jurors to focus on whether an architect or an engineer pursued the safest possible approach. And that is a much higher legal standard. It makes defending cases really difficult. So even if the case doesn't involve actual bodily injury, the plaintiff's bar is looking to get jurors to think about, but what if that terrible accident could have happened? The idea is really to trigger a juror's threat response. So as this trend increases, what you're starting to see is some carriers are starting to exit from the market. And that means there's no longer viable or affordable insurance for these institutions to buy. That's bad news for the insurer. It's bad news for the entity, and it's ultimately bad news for that entity’s client because insurance is in place as a loss mitigation tool for a reason.
Speaker 1 (05:39):
It certainly seems like social inflation is a real challenge for the industry. So we've spoken about the current claims landscape and challenges for businesses at the moment. How about the claims landscape down the line? Do you think that there's certain sectors where we're expecting to see a spike in claims and how about the recession and the pandemic? Does that mean that we're going to perhaps see lower claims due to low productivity in certain areas?
Speaker 2 (06:05):
Ooh, that's a tough one. We know we can plan based on what we've seen previously, such as with the recession, but COVID was unforeseen. And really, it raises a question of what might be the next black Swan event. The pandemic has taken a toll on people's physical and mental health, and that has the potential to drive up employment claims. So the wellbeing of staff is something that's quite important, and it's important for businesses to focus on that if you're needing to furlough, then furlough properly. And when you're coming back into your office or your business space, make sure you're not putting your employees or your clients at risk with the return to the business location. That can really help reduce claims down the line considering today, what claims might come as a result of the actions you're taking can really help you work to mitigate that risk.
Speaker 2 (07:03):
You know, I do imagine we're going to see changes in employment practices liability, but it's a bit early to comment on that. I think conversely, if we look at architects and engineers, as of now, there is no increase in claims and of course less work means less opportunities for there to be allegations of errors. Now that said, I suspect this is going to be a short lived hiatus, because we know that eventually projects will get restarted. New projects will occur. And the claims that naturally arise from those arenas will continue to be there. So what we've been doing right now in the present environment is talking with our clients about how the firms are doing and sharing key risk management principles. We want people to stay safe in this recessionary environment. We want them to thoughtfully manage collections and receivables, deal with things like troubled construction projects in a really affirmative way, and take on board lessons that we learned from the recession that hit back in 07/08.
Speaker 2 (08:04):
Now, in addition to that, of course, the cyber threat continues. We are now more than ever connected and dependent on technologies. And we're seeing hackers are only getting more aggressive and more ambitious. One example of that is ransomware. And just using one recent example, the Garmin attack, you know, that's something where here you have a household name, a personal device that so many of us use with a company under a ransomware attack. Ransomware attacks of course have evolved over the last year or so. They're not just ones that locked down and encrypt the company's systems. But now we're seeing that they also sometimes involve the exfiltration of data. So we have a situation where the company is not only facing a lockdown and encryption of its systems, but also need to deal with the potential breach because of the possible exfiltration of protected data.
Speaker 2 (09:03):
So again, what we're doing is working with our insureds to focus on risk mitigation, employee education, making sure employees aren't clicking on links or opening attachments from email recipients, they don't recognize so that the we're avoiding creating situations where the company can be harmed and making sure as well, our insureds know to have a really strong IT security culture. Ultimately defence is the best form of a counter attack against these aggressive and ambitious hackers. Just one other point, I think there, we have been really watching what's going on in the current environment. Courts were closed for a period of time. There'll be opening. Now jury trials are starting to get restarted. And we know there's some early indications of juror scepticism around scientific evidence. It's not clear yet whether this supports defendants by arguing that the plaintiff's experts are presenting junk science or whether it will really help the plaintiffs that really remains to be seen.
Speaker 2 (10:04):
But we know that changing environments and changing perceptions could affect a client's ability to defend and settle claims, particularly ones that involve a bodily injury. I would just wrap up really with noting that something we've learned about recessions over time is that they tend to expose frauds. Warren Buffet once said, it's only when the tide goes out, that you discover who's been swimming naked. And I'd say that it's probably likely in the next 18 months or so, we're going to start to learn what companies have been swimming naked for some time as frauds start to become exposed with the recessionary environment and the bankruptcies that are being filed. So, more to come, but it's a really evolving and interesting environment.
Speaker 1 (10:50):
That's a great quote. And thank you so much for sharing those really interesting insights into different areas. So I wanted to ask you a little more about, the future of claims departments. What's your opinion on how businesses should be looking to reshape their claims departments to manage this new landscape, for example, at Beazley, have you made any changes in order to support your clients in this new landscape?
Speaker 2 (11:14):
Great question, Sarah, I think we have to be really clear about our purpose and then shape our department based on that purpose. So it's important to be able to adapt and to be flexible, to always provide the best possible claim service. When the COVID-19 pandemic first hit we were really fortunate, because we had a number of people at Beazley who stepped up to be a Beazley citizen. And we had an initiative where those who had some availability stepped in to support our claims team by alleviating us of administrative tasks. And that allowed the claims team to really focus on our claims efforts where they were most needed. Another key focus area for us is creating beautifully designed insurance products that respond to the changing landscape and help mitigate these emerging risks. Our underwriting and claims departments work hand in hand to always create a winning team. And I think that's a true Beazley strength. We are very conscious about maintaining a strong dialogue across our product lines about the current litigation environment and how best to help our clients resolve claims globally. Now you might think in a virtual environment would really hamper our ability to remain connected. But actually what I’ve seen is that we have stayed very close and we're really thinking as a group about the big picture as we deal with these dual challenges of both a global pandemic and a recession.
Speaker 1 (12:41):
I have to say, of course, congratulations on winning the “excellence in claims service award” at the Reactions London Market awards, what would you say was behind Beazley's win? And in your opinion, what is it that sets us apart?
Speaker 2 (12:55):
Thank you! I am delighted to receive this award and so is the team. What sets us apart? I think it ultimately comes down to being very focused on the client and aiming, always to enable the client's business through these tough times. It's that seamless flow between underwriting and claims that enhances the client's experience in working with Beazley. And I think that at the end of the day is really a true differentiation for us.
Speaker 1 (13:22):
Thank you Beth. That's been a really good insight into Beazley's ethos of doing business and also to the current and emerging claims landscapes. Thanks to our listeners for joining us today, to learn more about this topic and others, please visit beazley.com for an extensive library of videos, podcasts, and blog posts. I'm Sarah Griffiths and this has been a Beazley podcast.
This podcast is for preliminary informational purposes. Coverage is subject to each policy’s, terms and conditions. For additional information about Beazley, please visit beazley.com.