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Recent loss, expense, and premium trends highlight the challenges that our industry faces. Loss and allocated loss adjustment expense (ALAE) ratios for auto liability claims increased from 72.8 percent in 2006 to 78.6 percent in 2008, translating to a jump of more than $4.7 billion, according to A.M. Best. These unfavorable trends impacted insurers of all sizes, as approximately 70 of the 100 largest auto liability insurance companies saw their losses and ALAE increase between 2006 and 2008.

In the world of bodily injury claims and our own analysis, the worst 10 percent of cases typically represent more than 70 percent of costs. Effectively managing this segment of high-severity claims provides claim organizations with the best chance to drive improved financial results. So when a bodily injury claim is reported, a critical question should be asked: “Is this claim one of the critical 10 percent?”

Inaccurately assessing bodily injury claim severity at first notice of loss (FNOL) creates various pitfalls that hinder resources and escalate costs. Claim operations are hindered by incomplete information, often complicating selection of claim and legal resources; estimation of settlement value; and creation of a strong resolution plan. For claim professionals, there is a narrow margin for error. One misstep in claim and litigation strategies may spell significant downstream expenses, a time-consuming legal battle and, ultimately, exposure to much higher claim payouts. To combat this issue, leading claim organizations are now employing advanced data analytics to pinpoint explosive claims and interrupt adverse claim outcomes.

 

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