Similar to other sectors, the insurance industry endured a difficult year in 2023. A difficult market and rising premiums aided insurers, but the sector also struggled with the skyrocketing cost of claims, which was partially due to inflation.
Thus, what developments might influence the insurance sector in the coming year?
Innovative AI tools to combat fraud.
Significant progress is anticipated in the domain of artificial intelligence (AI)-powered claims fraud detection in 2024. This progress will primarily target deep fakes and superficial fakes, constituting an overarching effort to combat the claims fraud sector.
Partner at Clyde & Co. Damian Rourke asserts, “The incorporation of AI into insurance fraud detection represents a significant advancement in the industry’s capacity to address an enduring problem that annually costs it billions of dollars.”
According to Rourke, the principal function of AI in this domain is to efficiently and precisely evaluate substantial quantities of data.
“AI algorithms and machine learning can efficiently sift through massive datasets and identify fraud-indicating patterns and anomalies,” he elaborated. This requires a thorough examination of claimant histories, claim characteristics, and comparisons with established fraud indicators.
“Through the process of learning from past data, it consistently improves its capability to detect complex fraudulent schemes,” he further stated.
“A critical advancement in AI for fraud detection is its capability to extract data points from various documents,” according to Rourke.
“By utilizing technologies such as natural language processing and optical character recognition, AI is able to analyze documents like medical records and claim forms, extract vital information, compare discrepancies, and emphasize possible warning signs.”
“This capability is crucial for identifying fraudulent activities, such as narrative inconsistencies or date inconsistencies,” he continued.
An imminent insurance regime change
The government of the United Kingdom will initiate a consultation in the spring of 2024 regarding the implementation of a captive insurance regime in an effort to revitalize the insurance industry.
Chris Lay, chief executive officer of Marsh McLennan UK, stated that “the UK insurance industry eagerly awaits the outcome of the government’s consultation.”
Captive insurance is a type of self-insurance in which the entities it insures establish and own the insurance company in its entirety. The underlying concept is that organizations can negotiate the policies they require while also obtaining coverage at a reduced expense in comparison to conventional insurance.
Lay elaborated, “According to Marsh’s Global Insurance Market Index, insurance premiums have increased for twenty-four consecutive quarters.” In the past two years, clients have encountered significant challenges pertaining to property catastrophes, professional liability, and cyber risks. In such situations, captive insurance solutions have emerged as a viable alternative to conventional market capacity for certain individuals.
The speaker emphasized that the United Kingdom’s present regulatory landscape hinders its potential as a feasible host country for captive insurance vehicles.
Lay continued, “A prosperous implementation of the recommendations reached through the consultation would provide the London insurance market and the financial services sector of the city with an immense opportunity.”
The cost of goods continues to increase.
Costs associated with claims have reached all-time highs in the past year, and this trend will continue through 2024.
Mike Dobson, a partner at Clyde & Co., explained that “fixed recoverable costs rules” will apply to an increasing number of injury claims, putting personal injury attorneys under pressure.
Predictability regarding the utmost liability of the losing party is ensured through fixed recoverable costs, which establish the amount of legal fees that the victor may demand from the losing party.
“Clyde & Co.’s catastrophic injury and large loss team is seeing more functional and psychological issues; more subtle brain injuries; and courts are placing a greater emphasis on vulnerability,” he said in reference to injury claims.
“This is significant because vulnerable claimants are exempt from the fixed recoverable costs regime,” he elaborated.
“Numerous injury claimants are certain to present circumstances in 2024 that increase the value of their cases beyond the threshold for recoverable costs,” he further stated.
Dobson, a partner in the firm’s catastrophic injury, automotive fraud, retail, and leisure businesses, also mentioned the “uncertainty of the Ogden rate review in 2024.”
He elaborated: “While it is possible that an increase in the rate could mitigate the effects of inflation, in the event that this does not transpire, insurers may be subjected to an additional substantial escalation in expenses.”
