Analysts at AM Best have reported that defence and cost containment (DCC) expenses including defence, litigation and medical cost containment are causing insurance claims to become increasingly severe and more complex.
DCC expenses are elevated for certain lines of property and casualty (P&C) business in particular, compared with other lines, the rating agency clarified, such as medical professional liability and product liability.
In response, insurers have put more focus on working with risk professionals and other stakeholders to limit defence costs.
According to AM Best, the higher DCC expenses attributable to medical professional liability policies have been associated with expert witness fees, costs to secure medical records and other allocated costs involved in defending physicians.
A drop in the medical professional liability segment’s DCC ratio in 2020 likely reflected a benefit from court closures due to the pandemic.
And in the product liability line, some of the costlier cases have involved protracted litigation typically stemming from product and food recalls.
“A number of factors have led to a higher amount of recalls, including enhanced regulatory scrutiny and improved technology,” said Christopher Graham, senior industry analyst, industry research and analytics, AM Best. “These are positive developments for some industries but a negative for insurers given the heightened potential for lawsuits.”
AM Best reports that the ratio of net DCC expenses to annual incurred losses overall has dropped in the last decade, even on the lines most prone to high-profile lawsuits, which in addition to product liability and medical professional liability, can include worker’s compensation and auto liability.
“Predictive analytics for claims handling has helped speed up the claims process and, in turn, has limited claim expenses,” concluded David Blades, director, industry research and analytics.
