Claims reserving Motor Fleet Insurance As a major Motor

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					                                                                           Claims reserving
                                                                                            Motor Fleet Insurance

As a major Motor Fleet insurer with
many years’ experience, we understand
the importance of reserving a financial
provision for the settlement of future
claims. We believe in working with
transparency and want to share with
you why there is a need to reserve for
future claims, the factors to consider
and what this means for customers.

One of the key features of our motor proposition    Our claims philosophy is to create a financial
is our ability to provide detailed and accurate     provision for the expected costs of a reported
loss statistics. The availability of this data is   claim. Claims handlers will set a reserve promptly
important for a number of reasons:                  after the first notification and endeavour to
                                                    ensure it is sufficient to cover all policy and legal
• It allows you to understand your risk and
                                                    liabilities. Reserves are reviewed each time there
  accurately identify areas in which risk
                                                    is a development on the claim and periodically.
  improvement is required.

• It helps to determine how your risk has           Why is there a need to reserve?
  performed and to benchmark against industry       The purpose of a claims reserve is to enable us
  and peer groups.                                  to make financial provision for settlement of an
• The costs of incurred claims are one of           uncertain claim. It is the uncertainty that makes
  the key considerations for us when setting        reserving a complex issue for insurers. There is
  risk premiums.                                    often a considerable time lag between when an
                                                    accident occurs and any resultant claim being
We constantly review our claim methodology          settled. This can often be several years, even in
to ensure that we keep abreast of changes and       the case of moderate injury claims.
developments in the environment in which
we operate.                                         By applying a reserve, a view has to be taken on
                                                    what changes may occur before the settlement
                                                    date is reached and the impact this could have
                                                    on the settlement cost of the claim.

                                                                                                Zurich Global Corporate UK
      These are some of the adverse external factors we need to consider when
      reserving for motor claims:
      • New ‘heads of damages’ could be introduced. For example, the recovery of NHS charges
        which were introduced in 1999.

      • New case law or settlement protocols may widen the scope of liability or increase the
        level of damages.

      • Future changes to the legal landscape may include a reduction in the Ogden discount
        rate, which will increase the cost of settling catastrophic injury claims.

      • The introduction of the ability for police and fire services to recover their costs of
        attending a road accident.

      Inflation is a factor that has a major effect on long-term settlement costs. For a major injury claim,
      settlement may be made five or more years after the incident. Our reserve needs to allow for the
      impact of inflation on the cost – most insurers project motor injury claims inflation at a rate of
      between 8-10% per annum.

      There is currently debate as to whether we have a ‘compensation culture’ in this country,
      and if so what exactly this is. There is undoubtedly significant public awareness of the availability
      of ‘no win no fee’ legal representation. Whilst this does ensure that genuine victims of road
      accidents have recourse to compensation, it also seeks to encourage a wider range of claims
      as well as escalation of fraudulent claims.

      The vast majority of our claims involve costs for repair to damaged vehicles and the provision
      of replacement vehicles to innocent third parties. Increasing replacement parts costs and the
      introduction of credit hire vehicles have had a notable impact on the cost of settling volume claims.

    We do not know the exact impact any of these factors will have in the future. In setting and reviewing
    reserves, we must assess all of the above risks associated with change and what their impact on the
    final settlement is likely to be.

    Failure to take account of the impact of these factors will lead to under-reserving. This means, the
    amount of money set aside to cover potential claims costs will be inadequate, threatening an insurer’s
    solvency and their ability to settle the claims. Several insurers have suffered in the past, due to
    inadequate reserves.

What reserving means for you                          Working with you to manage the
Under reserving will have a consequence               level of reserves
in the medium to long term, which could               We work with you to:
lead to increasing costs when the claim is
                                                      • proactively manage injury claims, through the
finalised and the case is closed, leading to
                                                        provision of physiotherapy and healthcare to
future premium increases. However, we
                                                        injured parties
always seek to offer stability in our pricing
through the use of accurate reserves.                 • manage Third Party vehicle repairs through
                                                        our approved network
We reserve on the basis of our expected
settlement cost, allowing for contributory            • provide low cost replacement vehicles to
negligence, proportion of blame and the ability         Third Parties, avoiding the need for credit hire
to recover any costs associated with the claim.
                                                      • help customers to reduce accident reporting
The reserve represents the expected ultimate
                                                        timescales, through adoption of more
claims cost, reflecting the uncertainty that a
                                                        effective reporting procedures
rapidly changing claims environment has on
outstanding claims. Each claim is considered on       • ensure we have access to detailed,
the facts presented and will include consideration      meaningful accident details, which enables
of many factors, which could encompass:                 us to better defend claims, especially those
                                                        claims which could potentially be fraudulent
• pain and suffering
                                                        or exaggerated.
• loss of amenity
                                                      These features are taken into consideration
• future loss of earnings                             when we set reserves, the actions we take will
                                                      help us to manage future settlement costs.
• vehicle repair costs
                                                      Therefore, we can make a direct impact on the
• legal defence costs and funding                     cost of claims and the premiums that will be
                                                      paid in the long term.
• cost of care or home assistance
                                                      We are happy to meet with you to discuss
• cost of replacement car hire.
                                                      ways in which we can help you manage your
Claims reserves alone do not drive premiums.          claims costs.
Whilst claims cost is a relevant factor in arriving
at a premium, it is only one of the many factors
we take into account. The biggest factor is
assessment of the future risk and the likely cost.
Claims reserves alone do not adequately reflect
the risk potential for the future. We look beyond
claims reserves to make a judgment on the
underlying risk potential and consider many
issues such as risk management, legislation,
change to business activity.
                                                                       To find our more
Our claims, underwriting and actuarial teams                         please speak to your
constantly monitor the impact of various claims                    usual Zurich contact or a
drivers. Our reserving strategy is regularly                      member of the Motor Team
reviewed to reflect current compensation and                       on 020 7648 3200 or visit
cost dynamics. Claims reserves will continue to                         our website at
move up and down, reflecting our analysis of                
the available information on specific claims, as                      corporatebusiness
well as generic factors such as the impact of
the socio-economic changes outlined earlier.

                        Zurich Global Corporate UK
                        London Underwriting Centre, 3 Minster Court, Mincing Lane, London EC3R 7DD, England.
                        Zurich Global Corporate UK is a trading name for:
                        Zurich Insurance plc
127686A01 (11/08) ZCA

                        A limited company incorporated in the Republic of Ireland No. 13460. UK Branch registered
                        in England and Wales No. BR7985. Registered Office: Zurich House, Ballsbridge Park, Dublin 4.
                        Head Office in the UK: The Zurich Centre, 3000 Parkway, Whiteley, Fareham, Hampshire, PO15 7JZ.
                        Authorised by the Irish Financial Regulator and regulated by the Financial Services Authority for
                        the conduct of UK business.