Companies are three times more likely to have to sue their insurers for not paying out a claim than they were just five years ago, ground-breaking research has found.
Insurers were also increasingly employing what Mactavish called “kitchen-sink” defences, where they provided multiple reasons for rejecting a claim, many of which would be dropped as a case headed to court.
Mactavish, which describes itself as an independent insurance buyer and claim resolution expert, argued that the insurance industry was failing its clients by taking such “a hard-nosed attitude” to paying out on claims, as exemplified by the approach to Covid-related claims under business interruption insurance.
It examined every insurance-related claim filed at the High Court over the last decade. This showed that, five years ago, there were on average 19 cases filed against insurers a year. That rose to 72 last year.
The most common reasons for declining claims were non-disclosure of material facts, lack of coverage, breach of policy conditions, misrepresentation, and claims alleged to be outside the scope of cover or excluded.
Mactavish linked the rise to the onset of the hard insurance market that emerged in 2018.
Chief executive Bruce Hepburn said: “Insurers don’t just react to a hard market by hiking rates, they also clamp down on claims.
“In today’s prolonged hard market, insurers don’t care about market share, they care about protecting their balance sheets. This is why premiums go up and insurers start to look for ways to reject claims.”
While accepting that not every insurance company that has toughened its attitude to claims, he continued: “Too many insurance companies are not fulfilling their primary function – the swift and fair settlement of insurance claims. This is a shattering indictment of the industry as a whole. If the industry is not paying claims as it should, what purpose does it serve?”
While the two most common reasons given for rejecting claims were lack of coverage and non-compliance with conditions, the report identified “a worrying trend where insurers would ‘kitchen-sink’ any defence to a claim”.
It explained: “Multiple reasons for rejecting claims, or drastically reducing the level of payout, were offered simultaneously. It was not uncommon for many of those reasons to fade away as the case approached judicial scrutiny, perhaps indicating they were not reasonable objections in the first place.”
Mr Hepburn added: “What insurance companies and their clients need to understand is that when companies enter into an insurance contract, they are not buying a dispute.
“An insurance contract should offer clearly defined protection from high-value/low-frequency events, and when those events occur, that contract should perform, swiftly and efficiently. Unfortunately, our data shows this is just not happening.”
In total, there were over 1,100 insurance-related High Court claims between 2012 and 2021. To understand better how insurers were handling commercial claims, the data was refined to exclude road traffic accidents and any cases where the insurer appeared as a claimant. This provided a sample size of 350 cases.