Michael Bruton | Chief Product Officer, DocLens.ai
Set a Baseline For Settlements & Risk
Claim portfolio managers searching for answers to the Social Inflation challenge should start by developing a repeatable methodology for measuring the impact of Social Inflation on a specific claim portfolio. By accounting for the other factors, such as change in the claim mix or claim handling practices and economic inflation, a portfolio manager can quantify the impact Social Inflation has had on a claim portfolio. Armed with the baseline data on Social Inflation, a portfolio manager should establish an aggressive but achievable goal for reducing that risk.
Next, Identify the Contributing Factors to Social Inflation
A claim portfolio manager developing an effective mitigation strategy must accurately identify the specific factors contributing to Social Inflation. Social Inflation, or the way society values claims, manifests most clearly in jury verdicts. Furthermore, Social Inflation has the most significant impact on claims involving bodily injury and the focus must be on those factors that influence jurors asked to value bodily injury claims. There are detailed studies on how juries process information and arguments. Trial preparation consultants conduct mock trials to assess the impact of specific themes and arguments. But, execution of an effective mitigation strategy depends on early identification of the risk and therefore, the focus should be on factors that can be detected in a claim file long before the trial is set to begin.
Experienced claim portfolio managers consistently point to three key factors that drive risk in third party bodily injury claim files: (1) facts related to the claim that tend to inflame anger or enhance sympathy; (2) the venue in which a trial would proceed; (3) the skill of the attorney representing the claimant.
Claim Characteristics of Risk
Sometimes called “red-flags”, there are certain terms or phrases that increase the risk of an outcome significantly influenced by Social Inflation. For example, claims that involve a traumatic brain injury, prior similar incidents, a violation of policies, procedures or safety regulations have a higher risk of generating anger or sympathy. The correlation between claim characteristics and risk is not a novel concept. However, as themes and theories evolve, portfolio managers must regularly update the correlation between key “red-flags” and outcomes. The challenge is to consistently find the claims that have those characteristics that increase risk and once identified to timely take action focused on mitigating that specific risk.
Venue For Claims & Litigation
It is clear that the risk of Social Inflation can depend on the geographic location from which a jury may be selected to value a claim. Once in litigation, unless there is a legally sufficient argument to change venue, the geographic location will be known. Pre-litigation, the venue can only be predicted but there is a higher risk that litigation, if it proceeds, will be initiated in the geographic area near the claimant’s attorney office, where the incident occurred or where the claimant resides. Thus, the risk associated with a venue can be evaluated preliminarily even in claims where litigation is not yet pending. All venues have some risk and the magnitude of that risk can evolve over time. A claim portfolio manager must have an accurate understanding of both the absolute and relative risk associated with a venue.
Attorneys Make A Difference
Numerous good attorneys represent claimants. Some attorneys have consistently achieved superior outcomes. When those attorneys are involved, the risk of an outcome impacted by Social Inflation is higher. Claim portfolio managers cannot control which attorney is retained to represent a claimant but a strategy must be in place for early identification and corresponding actions.
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