Discover the impact of general damages inflation on case predictions and how PREDiCT improves reserving accuracy.
PREDiCT: Spotlight on General Damages Claims Inflation analysis – piece for November Insurance Insights
BACKGROUND
The 17th edition of the Judicial College Guidelines was published in April 2024, which provided for a 22% uplift to the recommended settlement guidelines for injuries (excluding sexual abuse cases) since the previous edition. This was a significant uplift to the level of general damages in comparison to the levels of uplifts previously seen. However, considering the wider political and economic context, the significant increase in the rate of RPI inflation and cases such as Blair v Jaber [2023] and Dee v Welsh Ambulance Services [2023], all of these factors were influential on the uplifted guidelines.
Such a sharp increase demonstrated the need for case handlers and insurers to review reserves and levels of any outstanding offers, to ensure that case reserves remained adequate, and outstanding offers still afforded adequate protection.
PREDiCT INSIGHT
As we near the end of 2024, an analysis of general damages predicted by PREDiCT - our market leading analytics tool - demonstrates the impact of general damages inflation on claim outcome predictions. For context, PREDiCT uses a vast amount of data recorded from settled cases to inform its predictions. One such data field is general damages. This data has been recorded over the course of several years. The impact of the general damages figures recorded, specifically in more recent years, demonstrates anticipated inflation through the lens of PREDiCT.
The PREDiCT tool relies on models which mirror the influences on settlement values, including the changes in those influences over time. By simulating the values of a set of cases across a timespan we can explore the time – value trend independently of specific case characteristics, presented below:
The blue line in the plot above demonstrates the median general damages inflation rate, with a baseline inflation value shown as 1.00 in 2009. The median general damages prediction figure (across all cases) has risen from approximately £60,000 in 2009 to £80,000 in 2024.
Between 2009 and 2019, the general damages inflation increase was relatively flat, increasing by a total of 6% over the period. By contrast, the steepest period of inflation is seen between 2019 and 2022. In these three years, the figure rose by 16%. Since 2022, the rate of inflation has cooled by comparison to the prior three-year period, but still increased by a further 5%. The total general damages inflation between 2019 and 2024 was 21%.
It is therefore interesting to note, on the basis of the inflation levels shown in the plot above, that the impact of general damages inflation was being appropriately factored into case predictions before the publication of the 17th Edition of the JC Guidelines. One of the key performance indicators of PREDiCT is improving reserving accuracy, and the plot above shows how the model has accounted for general damages inflation.
Early next year, we will be launching a model update – based on additional settled case data, and further improvements to the modelling. We will also be publishing a full PREDiCT market report soon, so watch this space for further details!
If you would like to speak to a member of our PREDiCT team for further information and to arrange a free demo, fill in our enquiry form and we will be in touch.
