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We look at experiences we can draw on from previous economic downturns in predicting possible behaviours.

It has often been said recently that we are “living in unprecedented times”. Whilst that is certainly true, there are experiences we can draw on from previous economic downturns in predicting possible behaviours as regards claimant firms, and personal injury claims.

There is no escaping the fact that the UK is in a dire economic situation. A report in the Guardian in January 2021, commenting on recent data from the Office for Budget Responsibility (OBR), cited:-

  • the worst economic recession in 300 years;
  • an anticipated budget deficit (the difference between tax income and public spending) of £394 billion for the year ending 31 March 2021;
  • national debt above £2 trillion, expected to remain at that level for the next 5 years;
  • inflation at the lowest level on record in 2020;
  • interest rates at the lowest in their 326 year history;

Even before the pandemic took effect, many businesses were struggling to trade profitably and the past 12 months have brought things to a head. Consequently, we have seen many longstanding and trusted British industries and high street names collapse or teeter on the brink of administration including Flybe, Paperchase, Arcadia (Topshop, Miss Selfridge etc), Debenhams, Jaeger/Edinburgh Woollen Mill, DW Sports, Bensons, TM Lewin, and Cath Kidston. Indeed, at the end of 2020 a survey by the Office of National Statistics found that one in seven British businesses had “low or no confidence” that they would survive the following 3 months.  The upshot of this is mass redundancy and whilst inevitable that the brunt has been borne by the retail sector, few sectors have been immune. Last April saw the announcement by BT that it was shedding 12,000 jobs, followed by Marks and Spencer (7000), Rolls Royce (6000) and Centrica (5,000) to name but a few. Indeed, by the middle of January 2021, data collected by Sky News, suggested that at least 155, 872 jobs had been lost due to coronavirus across a number of sectors:-

  • Retail – 40,511
  • Aviation – 35,404
  • Hospitality – 34,308
  • Wider Economy – 27,801
  • Energy – 9,600
  • Manufacturing – 8,968

It is also important to bear in mind that this is likely to be a very conservative estimate, with many small business, unable to weather the effects of Covid-19, not featuring in these statistics. ONS figures confirm the number of employees on payroll fell 819,000 between February and November 2020, suggesting a far bigger impact on employment than the Sky research indicates. 

Further, there are signs that things are likely to get worse. The ONS records that in the 3 months to November, unemployment rose from 4.9% to 5%, with 1.72 million people jobless, the highest level in 5 years and a rise of 418,000 from the same period the year before, the largest increase since 2009. The extension of the furlough scheme until the end of April 2021 is likely to have suspended employers’ plans to make further redundancies so far and therefore this figure is likely to rise further then.

Things are not as bad (at least yet) as the previous high of 8.5% in 2011 but the OBR predicts the current figure will increase to 7.5% by the middle of 2021. And there is clear evidence that recessions with resultant job losses coincide with a rise in personal injury and other claims. In 2009 the Insurance Times suggested the 2009 recession was responsible for a 30% rise in fraudulent claims. DWP data shows that the number of registered EL claims rose by 7% in 2011/2012 compared to the previous year, with further increases in the following 2 years. This is perhaps inevitable. As staff are laid off, they no longer have the same loyalty to their employers. When combined with pressure on individuals to find money to pay the essential bills without an income coming in, and encouragement from CMCs, it is no wonder that former staff bring claims which they previously had no intention of issuing. When the above statistics are combined with those in a recent SHP report that 70% of employees don’t feel safe at work, and a report in Personnel Today that a 20-30% fall in workspace rental is expected, this should be a cause for concern for EL insurers. Not only will more people be contemplating pursuing personal injury claims but the employers (and therefore their insurers) have less ability to successfully defend those claims presented up to 3 years down the line, given that workplaces will have closed, key witness personnel will have left, paperwork will have been lost and processes ceased. With the average indemnity spend per litigated fast track EL claim estimated to be in the region of £14,000 - £15,000, insurers are facing significant potential outlay over the next few years. Without the evidence to combat the claims presented, such expenditure is inevitable.

This is why insurers and their customers need to act now. We operates a service, supported by a digital vault, which identifies likely future claims from historic incident histories and preserves essential evidence and disclosure before it is lost or destroyed forever. It is of course essential that this is done in a sensitive and discrete manner whilst the business is still operating and before staff redundancy programmes are concluded, in order not to ‘tip off’ staff or encourage them to claim. However, acting now means that insurers will have the essential tools and evidence to repudiate at least some of the claims presented later. By preserving the essential evidence now, even if just one claim subsequently pursued can be repudiated which would otherwise have had to be paid through lack of evidence, the process is cost-neutral and money well spent.    

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