Judicial College Guidelines: Impact of Inflation on Claims and Insurance

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Inflation has had a significant impact on claims – requiring organisations to adapt their insurance programmes to keep pace with the changing environment. Rising costs across various sectors have led to increased claim amounts. To effectively navigate this landscape, organisations must implement robust claims management processes to help safeguard their operations and mitigate the financial risks associated with inflation.

The latest edition of the Judicial College Guidelines

The Judicial College published the 17th edition of its 'Guidelines (JCG) for the Assessment of General Damages in Personal Injury Cases' on 5 April, 2024. These guidelines are used by courts, insurers, and lawyers to help assess the appropriate compensation levels for pain, suffering, and loss of amenity – commonly referred to as general damages. The guidelines provide monetary brackets for each category of injury and, while applicable to England and Wales, are only the subject of an adjustment for Scotland.

The 16th edition, published in April 2022, was based on retail price index (RPI) figures up to September 2021. High inflation experienced in the intervening period between the two editions fuelled expectations for increases to general damage awards.

The 17th edition factors in average increases of 22% to allow for inflation up to August 2023. For post August 2023, the guidelines state that damages should be further uprated to allow for inflation between August 2023 and the date of assessment, again based upon the RPI.

Insurance market response

Considerable increases are likely to result in an uplift in insurer/third party administrator reserves as they review their outstanding cases. Claims handlers should continually review reserves and offers during the lifecycle of a claim, including consideration of inflation. However, the JCG increases will no doubt bring claims inflation into focus and some insurers are already committing to a full review of their outstanding reserves.

While each insurer will adopt its own approach to its reserves, every claim should be reviewed based on its own merits. General damages are just one part of an overall claim reserve and, while an average increase of 22% is significant, large claims special damages (past and future financial losses) and legal costs will potentially present more sizeable increases.

Effective claims management

Claims handlers should continue to monitor the adequacy of reserves, habitually assess offers, and remain aware that claims have greater potential to exceed portal limits. Those with delegated claims handling authority should ensure that any potential claim value increases do not inadvertently exceed the delegated authority levels. As claims costs increase, it is important to ensure that insurers are closing files at the appropriate time to help reduce overall reserves.

Other inflationary increases

For the first time since the NHS injury costs recovery scheme was introduced in 2007, the NHS has announced a mid-year increase to service charges – in response to inflationary pressures. These increases are displayed in the below graphic.

	Injuries from 2 October 2023	Injuries from 1 April 2024
Outpatient	£806	£825
Inpatient	£991	£1,014
Ambulance journey (per journey)	£243	£249
Maximum	£59,248	£60,610

Other inflationary pressures impacting claims settlements include, increases in:

The national minimum wage.
The national living wage.
The state pension (in line with the consumer price index).
Vehicle repair costs and labour shortages, impacting motor claims costs.

Horizon scanning

Future developments could also impact the overall cost of claims. Regarding motor insurance, the Civil Liability Act 2018 requires the Ministry of Justice to review the Official Injury Claims whiplash tariff by the end of May 2024. This review could present a significant inflationary increase to the whiplash tariff – potentially up to 15%.

Additionally, a review of the personal injury discount rate (PIDR) is also due to commence this year – with implementation expected by January 2025. The PIDR is applied when assessing lump-sum awards for future financial losses to claimants who sustained significant personal injuries. As awards are based on claimants being able to invest their lump sums to receive interest, the discount is applied to ensure claimants are appropriately compensated.

The current discount rate was set in 2019 at -0.25%, with review scheduled for every five years. Lower rates result in a higher sum payable to the claimant. Inflationary pressures and increased returns on investment have led to expectations for an increase in PIDR – thus reducing claimants’ awards. The net impact of this should far outweigh the 22% increase on general damages for large losses.

Support available for your business

The risks presented by an increase in claims costs raise the importance of robust claims handling, claims defensibility, and insurance programme design. Seeking expert industry analysis and advice can help optimise your insurance programme and ensure limits of indemnity are suitable to the changing environment. Additionally, highly skilled claims professionals can perform robust claims audits and claims defensibility reviews – helping to reduce total cost of risk and ensuring a smoother renewal or tender process.

For further discussion on the impact of inflationary pressures and how Marsh can help you improve your claims costs management and claims defensibility, contact your Marsh adviser.

The information contained herein is based on sources we believe reliable and should be understood to be general insurance and risk management information only. The information is not intended to be taken as advice and cannot be relied upon as such. Statements concerning legal, tax or accounting matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal, tax or accounting advice, which we are not authorised to provide.

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Judicial College Guidelines and the impact of inflation on claims and insurance