Legacy 2015
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Legacy 2015

Operating returns

The legacy market has never had much clout with regulators, which seems unjust when one considers that the sector effectively saved the bacon of the Financial Services Authority after insurance industry regulation went awry in the 1990s.

It seems therefore, that rather than allow itself to be demonised by the wider market and walked over by the regulator, this crucial sector should start lobbying harder for its own interests.

Last year legacy carriers were dealt a significant blow when the Prudential Regulation Authority announced that it planned to crack down on exit strategies, such as the use of schemes of arrangement and capital extraction.

The argument then was that the new regulation was in the interests of "policyholder protection". But now it is this very sector that needs protection, and where is the regulator?

In the past year an old enemy of the sector has reared its ugly head again - and this time it has private equity backing. The threat comes from aggressive claimant law firms. While in their conventional form such companies are well known to the industry, the new breed is venture capital-backed and itching for a return on investment.

The firms, and their financial backers, are hoping that the expected return will come from the pockets of insurers and run-off providers.

The lawyers are effectively harvesting noise-induced hearing loss claims as a vehicle for that much-hoped-for return.

In theory, claimants seeking compensation for latent injury should not be a problem. But these are not normal claims - and they're flooding in thick and fast.

Industry insiders estimate that the average claim is settled for around £3,500 - just a fraction of the costs claimed by the law firms.

Respected defendant law firm Weightmans estimates that the claimant firms are seeking costs of more than £12,000 for cases that settled before litigation and over £20,000 in the cases that actually made it to court.

And the law firms are being aggressive in their bid to make a return.

In March, The Insurance Insider revealed that one such firm, Roberts Jackson, had written to a number of insurers with significant UK employers' liability books to put them on notice that it intended to begin issuing claims in bulk.

The letter, sent late last year, accused insurers of being slow to respond to claims, as well as blaming rival law firms for "clogging up" the system and taking up the time of claims handlers by bringing claims of "no merit".

But the bombardment of claims may have had one positive effect. It has elicited a rare joined-up response from the legacy and live markets.

The Association of British Insurers (ABI) has expressed concern at the rise in the number of deafness claims issued in the past year, which has bucked the actuarial trend.

The number of claims is thought to have risen from 36,000 in 2011 to more than 120,000 in 2013.

"Introducing fixed recoverable costs is key if we are to get a grip on disproportionate legal costs that have led industrial deafness to become the new cash cow for some claimant law firms," the ABI said.

Last month, major UK insurer Aviva waded into the argument by calling for the government to clamp down on "spurious" industrial deafness claims filed by "opportunistic" claimant lawyers. The carrier, which has a sizeable UK employers' liability legacy book, said 85 percent of industrial deafness claims failed to demonstrate any link to workplace noise-induced hearing loss.

Aviva criticised claimant lawyers for "submitting weak cases" and claiming costs that dwarf the actual damages.

It remains to be seen whether the calls will fall on deaf ears, but the issue may now be out of the industry's hands and into those of the UK electorate.

To read the Legacy 2015 supplement please click here

Dan Ascher

Editor, Legacy

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