Our active dataset compiled from many years of PREDiCT large loss claims provides a clear and informative breakdown of how total indemnity spend is distributed. By examining the key components and their respective percentages from approximately the last eight years of data, we gain valuable insight into where payments truly go in large loss claims.
Understanding the drivers of indemnity spend
Rather than viewing paid total indemnity spend as a single, monolithic figure (totalling approximately £1.1bn in our sample, shown in the graphic as ‘Indemnity Cost’) our PREDiCT dataset separates the different elements. This breakdown is necessary to allow PREDiCT to model the impact of factors such as changes in the discount rate or claims inflation trends. An unintended benefit is the ability to consider total indemnity spend through the lens of individual components. This approach shines a light on which components represent the largest financial drivers.
Percentage breakdown of damages: key components
As may be readily expected in large loss claims, the largest single component is future loss (excluding loss of earnings). In the graphic, these are referred to as “future costs”, which represent the overwhelmingly largest share – approximately 57%. In cases where claimants are left with extensive or complex needs, a wide variety of expensive future heads of loss (such as live-in or specialist care, accommodation, prosthetics etc) are likely to engage.
Future loss of earnings accounts for approximately 15%. From claim to claim, the extent of a claimant’s ability to work after an accident can of course vary widely. However, it is notable from the graphic that the total figure paid for future loss of earnings stands at approximately a quarter of the figure paid for all other heads of future loss. These other future heads of loss vary significantly depending upon the nature of the claim and have therefore been categorised together for the purposes of this analysis.
General damages and past losses together comprise approximately 20%. It can be a feature of some claims and in particular the most serious of catastrophic injury claims (such as tetraplegic or serious traumatic brain injury cases), that the figures within the JC Guidelines allow for PSLA awards which comprise only a very small percentage of the claim’s value. The overall figure for general damages represents approximately 8% of total claims damages paid.
The takeaway: the true weight of indemnity spend
The data is clear: damages payments – with their associated weightings of future costs, loss of earnings, past losses, and general damages - make up the overwhelming majority of overall indemnity spend at approximately 86%. For insurers, claims managers and other stakeholders, this insight is critical. Focusing on the main drivers, especially those related to future liabilities, enables the greatest opportunity to achieve savings. Measures such as engaging with early rehabilitation to optimise recovery, close management of the level or cost of rehabilitative intervention, selection of robust experts in appropriate cases to challenge future heads of loss and early panel instruction to help control the trajectory of cases should be prioritised. Whilst of course legal expense is an important component, the greatest impact and potential to reduce overall indemnity spend will come from strategies that address the heads of loss reflected in the largest categories of indemnity spend.
The PREDiCT large loss data set offers an invaluable perspective on the composition of total indemnity spend. By fully understanding the interplay between the various heads of loss analysed in this article, insurers can make more informed decisions and foster better outcomes.
