MARKET PERFORMANCE

As ever, we start with a high-level view of the trend we have seen through our claims performance reviews across Motor, Casualty and Property claims operations. From the performance reviews we have carried out in 2025 so far, overall, we have seen an increase in performance levels, albeit the worst are getting worse, and the best are getting slightly better:

AI IN CLAIM OPERATIONS – THE ZEITGEIST OF 2025

The stock market is booming on expectations of the improvements AI will bring to businesses, but the Chief Executive of Alphabet is saying, “Don’t blindly trust what AI tells you.” So, what’s the reality for the claim world?

A year ago, conversations about AI in claims handling were cautious, exploratory and even sceptical. Today, they’re unavoidable. The question around AI has shifted from “should we?” to “how fast and how safely?”

I’m very much in the positive camp when it comes to AI in claims operations. We’ve all had to do our fair share of grunt work in the past, and many will argue that this is essential, foundational training, but it can also be mind-numbingly dull and inefficient, which isn’t hugely attractive for customers or those seeking a career in claims. So, if AI can take on the routine tasks, freeing people to focus on cases that genuinely need human judgment and empathy, that feels like progress worth pursuing.

What strikes me from our work across different firms is the variability in AI maturity and appetite. Some insurers and law firms have moved beyond pilots into operational deployment – automated triage, document processing, initial assessments, customer communication etc. Others are still wrestling with foundational questions about accuracy thresholds, regulatory risk and what responsible deployment actually looks like. I hear the same tension repeatedly: nobody wants to be left behind, but equally nobody wants to be the cautionary tale.

The practical challenges clients raise with us are less about the technology itself and more about deployment realities. What accuracy rate is acceptable when making decisions affecting someone’s claim? How do you balance efficiency gains with customer experience? Can you improve both simultaneously, or does faster inevitably mean compromising on quality? I think the answer depends heavily on design and measurement, not just the technology itself.

Then there’s what I believe is the most critical question: what happens to people when AI takes on their routine work? The conversations we’re having suggest firms are grappling with this in very different ways. Some are investing significantly in retraining and upskilling, recognising that the role is changing, not disappearing. Others haven’t quite worked out what that transition looks like yet. It’s not just about learning new tools; it’s about fundamentally different skills when humans focus on the complex and exceptional rather than the routine.

AI technology is moving quickly, but the harder questions about accuracy, oversight, culture and future skills are the ones that will ultimately determine whether AI delivers on its potential or becomes another expensive disappointment. Both the optimism and the caution have equal measures of merit.

DELEGATED AUTHORITY

In 2025, the Financial Conduct Authority (FCA) intensified its scrutiny of delegated authority (DA) arrangements, placing a spotlight on how insurers, MGAs, and TPAs manage outsourced claims.

The regulator’s expectations are clear: firms must ensure robust oversight, fair treatment of customers, effective use of management information (MI), and full alignment with the Consumer Duty — regardless of who handles the claim.

In the past 12 months we’ve reviewed 57 DA arrangements, helping clients across the insurance value chain meet these evolving standards. Our engagements this year have included:

1. 1. • Conducting multi-phase strategic reviews of delegated claims handling across UK and European portfolios, with a focus on Consumer Duty compliance, MI accuracy, and governance consistency.
      • Supporting insurers and MGAs in developing and implementing Balanced Business Scorecards to monitor TPA performance across key metrics such as claim lifecycle, complaint handling, and customer outcomes.
      • Advising on the redesign of oversight frameworks, including the introduction of monthly operational meetings, annual strategic reviews, and real-time dashboard reporting.
      • Providing independent file audits and technical reviews to assess the quality of claims handling and identify areas for remediation.

Drawing on our experience, we recommend the following best practices for auditing delegated claims handling:

1. 1. 1. Adopt a risk-based audit plan, prioritising high-risk portfolios and partners.
      2. Use structured audit templates aligned with FCA expectations and Consumer Duty outcomes.
      3. Sample a representative mix of open, closed, and vulnerable customer claims.
      4. Validate MI accuracy and ensure data integrity across all delegated partners.
      5. Engage delegates in transparent feedback loops and track remediation actions.
      6. Escalate material findings to governance forums and integrate audit results into board-level reporting.

As the regulatory bar continues to rise, firms must treat delegated claims as an extension of their own operations. At SX3, we’re proud to support our clients in building resilient, compliant, and customer-centric claims ecosystems.

You might enjoy…

1. 1. • SX3 Case Study: Driving Better Customer Outcomes in Travel Claims

COMPULSORY MEDIATION IN MOTOR CLAIMS

The MoJ’s mediation pilot for claims under £10,000 (excluding personal injury) is narrow by design, but its ambitions are broader.

Testing whether early dialogue can divert disputes away from the courts and into faster, more proportionate settlement routes, this feels less like a contained experiment and more like groundwork for a wider shift in civil dispute resolution.

Recent CPR changes reinforce that trajectory. Judges can now pause proceedings and direct parties to ADR where settlement looks achievable, moving mediation from a voluntary option.

The Mazur ruling, by tightening the rules on who can conduct litigation, adds a further nudge. As law firms reassess their operating models and authorisation requirements, mediation becomes a more attractive, and perhaps necessary, route to resolution.

Together, these developments signal a move towards mediation becoming, in practice, compulsory across many motor claims pathways.

FCA REVIEW OF TRAVEL & HOME MARKET

The FCA launched a broad review of home and travel insurance claims handling in 2025 after rising concerns about poor consumer outcomes, including a formal super-complaint from Which? highlighting serious failings.

These two insurance markets were targeted because they have among the lowest claim acceptance rates (around 73% for home, 79% for travel) and can cause consumer harm when claims go wrong.

The review uncovered widespread problems in claims handling, summarised in the table below.

Regulatory Response

The FCA is providing individual feedback to reviewed firms and expects all insurers to self-assess against these findings. However, with no public enforcement action announced, Which? deemed the response insufficient – incorporating these findings into their super-complaint demanding concrete intervention by December 22nd. The review revealed an industry struggling with fundamental obligations under Consumer Duty. Whether December’s deadline brings enforcement or merely more review cycles remains the critical question for 2026.

Over the past 12 months SX3 have performed 11 insurer audits of home and travel claims practises as part of a wider program of 26 audits covering broader consumer claims practises.

You might enjoy…

1. 1. • SX3 Case Study: Assessing Fairness & Consistency in Repudiated Home Claims
      • SX3 Article: What Which? Missed About Home & Travel Insurance Claims

FRAUD & THE ECCTA

The Economic Crime and Corporate Transparency Act 2023 (ECCTA) is now in force and it’s changing the way insurance businesses must think about fraud, governance, and compliance.

At its core is the new offence of “Failure to Prevent Fraud”, which applies to large organisations and came into effect in September 2025. If an employee, agent or third party commits fraud for the company’s benefit, the organisation ​can be prosecuted, unless it can demonstrate that reasonable fraud prevention procedures were in place. The extent of these procedures will also influence the prosecuting agency, the Serious Fraud Office and whether to investigate or pursue a Deferred Prosecution Agreement in the event of a breach.

The failure to prevent corporate criminal offence in ECCTA poses specific risks for insurance businesses and Claims in particular, due to the broad ecosystem of businesses servicing insurers and the nature of commercial relationships. For claims managers, this means a shift from reactive to proactive fraud management. Anti-fraud controls must be embedded in daily operations with fit-for-purpose risk assessment, clear documentation, regular training and robust oversight of third-party suppliers and adjusters. Claims teams should also leverage enhanced Companies House data to verify claimant and supplier identities.

The ECCTA also strengthens Companies House’s powers, requiring identity verification for directors and beneficial owners and offering new tools to validate commercial claimants and spot red flags.

At SX3, we’re helping insurers navigate this new landscape. From operational reviews to fraud risk assessments and testing of fraud response plans, we support Claims teams in building resilient, compliant processes that meet the ECCTA’s high bar.

MAZUR V CHARLES RUSSELL SPEECHLYS

September’s Mazur ruling raised a question that probably should have been straightforward: who can actually conduct litigation? The High Court’s answer was that individuals must be personally authorised, not just supervised or employed by an authorised firm, which has created major ripples that are still spreading through the sector.

What makes this particularly unsettling isn’t just the ruling itself, but what it revealed about regulatory clarity. Law firms had built operating models in good faith based on guidance they’d been given, only to find that guidance reversed in court. The SRA had assured firms their supervision arrangements were compliant before changing position. It’s left many wondering whether the judgment’s interpretation of the 2007 Act is even correct, a question CILEX is now taking to the Court of Appeal, though any hearing may not happen until early 2027.

For insurers, the practical impact is more contained than headlines suggest. Pre-litigation claims continue unaffected and given most RTA claims settle through portals without reaching court, operational disruption is limited. But within that smaller litigation space, there are real considerations. Law firms now require greater qualified solicitor involvement, which will likely increase costs. This creates questions on both sides of the fence: claimant firms may point to supervision requirements when defending their costs, while insurers want assurance from defendant panels about compliance.

Then there’s the question of scrutiny – both retrospective and going forward. For cases already in litigation, insurers may demand evidence of appropriate supervision, particularly where costs are being challenged. But this also creates a new pressure point for future litigated claims, with the potential for more frequent challenges to claimant firms around team composition and qualified oversight. Independent review of case files offers a way to satisfy compliance concerns without relying solely on panel self-assessment.

The sector is adapting while awaiting Court of Appeal clarity. For insurers and claimant firms alike, this could strengthen the case for earlier settlement strategies and greater use of ADR – approaches that sidestep litigation complications entirely.

You can download a full version of our 2025 Claims Sector review here

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Client Challenge:

A leading UK personal lines insurer sought independent assurance around the fairness and consistency of its home claims repudiation decisions. With a focus on compliance with Consumer Duty and control of indemnity spend, the client wanted to understand whether claims were being rejected appropriately, if customer communication met required standards, and whether third-party administrators (TPAs) aligned with internal handling philosophies. Particular attention was placed on ensuring vulnerable customers were being identified and appropriately supported throughout the process.

Our Approach:

SX3 audited 100 declined home insurance claims closed between September and November 2024, spanning in-house claims and those handled by two TPAs. The focus was on decision accuracy, communication, vulnerability handling and adherence to the client’s claims handling philosophy. Claims were assessed against clear technical and customer-handling criteria.

Targeted Sampling: We selected claims based on rejection volumes across key perils and suppliers, with a focus on storm, AD, EOW and theft claims.

Tailored Audit Framework: A bespoke audit methodology was applied to test decisions, communication, process adherence and policy alignment.

Remote Audit Execution: Our team worked remotely, using system access and shared documents and liaised with claims teams to clarify and confirm observations.

Daily Engagement: Findings were shared regularly with the client and TPAs to ensure transparency, validate insights and drive mutual understanding.

Findings:

The audit found that 95% of claims were correctly declined. However, variations in execution, documentation, and communication standards highlighted areas for improvement across both internal and outsourced teams.

Key themes included:

Decision-Making Accuracy: The technical basis for declinature was generally strong, with minimal high-risk concerns.

Customer Communication: Only 33% of rejections were confirmed in writing, with verbal decisions not always backed by sufficient file documentation or confirmation of customer understanding.

File Note Quality: Across all handlers, a number of cases showed limited rationale or explanation behind the declinature recorded on file.

Referrals and Escalation: Opportunities to refer complex or repeat cases to internal specialist teams (e.g. underwriting or fraud) were occasionally missed

Vulnerability Handling: Vulnerable customers were generally well supported, though automation via self-service channels meant counter-fraud and vulnerability prompts were sometimes bypassed

Solution Delivered

SX3 delivered a comprehensive audit report summarising quantitative results and qualitative insights. We highlighted performance by claims function and TPA, provided evidence-led recommendations, and supported the client in ensuring findings were agreed and accepted by each party.

Recommendations included:

• Clarifying when written communication of rejections is mandatory
• Reinforcing repudiation protocols and documentation standards
• Reviewing the customer communication script and declinature letter templates
• Strengthening internal oversight of self-service and automated claims journeys

Results:

• Repudiation Confidence: The audit provided evidence that the vast majority of declined claims were technically valid, giving internal and regulatory assurance.
• Improved Governance: Findings will support better consistency of handling across TPAs and in-house teams through clearer guidance and MI monitoring.
• Fairer Customer Experience: The focus on communication and vulnerability will drive improved outcomes, better alignment to Consumer Duty expectations and stronger customer trust.

Conclusion

This review demonstrates how independent, insight-driven auditing can validate good practice while uncovering improvement opportunities. By focusing on a complex and sensitive part of the home claims journey, SX£ helped ensure that policy terms were applied fairly, customers were treated consistently and the insurer could move forward with both assurance and clear actions.

Contact SX3 to explore how independent auditing can improve claims fairness and operational alignment in your business

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Client Challenge:

A motor insurer sought to assess the quality of settled claims handled by an outsourced claims partner. Specifically, the audit aimed to identify any missed recovery opportunities and quantify the cost of those missed opportunities. With a focus on settled own damage (AD) claims involving an at fault third party, the objective was to ensure closure protocols were being followed and opportunities for recovery had not been overlooked.

Our Approach:

SX3 conducted an in-depth file audit using a structured methodology tailored to the client’s requirements:

Targeted File Selection:We reviewed a sample of AD claims closed in the last 6-9 months, where no recovery had been made despite third-party fault. The cohort was designed to identify the most likely cases for missed recoveries.

Remote Audit Execution: Our auditors accessed the claims management system directly, conducting a comprehensive review of claim activity, recovery pursuit, and file closure rationale e.g. whether the decision to abandon a recovery was accurate.

Performance Benchmarking: We developed a streamlined version of SX3’s audit framework for this engagement, enabling a focused deep dive into recovery and closure. This tailored approach delivered greater audit efficiency, while still enabling our market benchmarking.

Daily Collaboration: Findings were shared with the claims partner each day during the audit process, ensuring clarity, accountability, and opportunity for immediate feedback.

Findings:

The audit uncovered both strengths and improvement areas across recovery and closure handling:

File Closure Accuracy: 88% of files were found to be closed in line with the claims partner’s closure rules. Of the files closed not in line with the rules, common failures were either a recovery attempt was not pursued or was abandoned without documented rationale or clear justification.

Recovery Accuracy: 84.6% of files demonstrated appropriate recovery activity. In the remainder, missed opportunities were often linked to inaction, poor follow-through, or insufficient review of historical file notes.

Claim Leakage: The leakage rate identified was 9.92%, across both soft and hard leakage. Key contributors included:

• Delayed action resulting in loss of evidence (e.g. CCTV wiped/lost)
• Supplier decisions not being challenged
• Gaps in documentation when abandoning recovery efforts

Solution Delivered

Report and recommendations were delivered within 2 weeks of completing the fieldwork, and included:

• Case-by-case analysis of identified leakage
• Quantification of missed recoveries
• Root cause assessment and recommendations which included:
  • Missed or unrecorded system actions and diary notes
  • Lack of review of historical file notes
  • Unclear abandonment and closure sign-off processes
  • Closures without appropriate explanation or rationale
  • Dormant files closed in bulk
  • Resourcing constraints impacting claims progression
  • Handler inexperience in recognising or pursuing recovery
• Benchmarking insights against market standards

As part of the audit service, we ensured the findings were agreed and accepted by the outsourced claims partner, securing their buy-in to the recommendations. They committed to proactive internal review and process improvement in light of our findings.

Results:

The new approach delivered measurable improvements:

• Tangible Insight: The audit highlighted improvement areas in recovery pursuit and closure discipline that, when addressed, could reduce leakage and support better cost outcomes.
• Process Alignment: The claims partner acknowledged the findings and committed to implementing new documentation standards and internal protocols.
• Collaborative Improvement: The outcome supports further collaboration between insurer and handler to continuously improve recovery outcomes and operational governance.
• Recoveries: Claims re-opened and recommended recovery practises implemented – leading to six-figure (and counting)  saving on indemnity spend.

Conclusion

This audit illustrates the value of independent insight in driving claims performance. By targeting a specific cohort where missed recoveries were most likely, SX3 helped the insurer and their partner identify tangible opportunities to reduce leakage, strengthen closure discipline, and improve recovery practices. The outcome underlines the importance of robust independent file quality assurance and demonstrates how a collaborative auditing approach can support better commercial and customer outcomes alike.

Contact SX3 today to explore how we can help your business

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Client Challenge:

A global insurer sought independent assurance around customer outcomes delivered by a third-party administrator (TPA) for a large-scale travel insurance scheme. With policies primarily sold through non-insurance skilled retailers, and a 24/7 distributed claims model operating both remotely and across multiple continents, concerns had emerged around consistency of claims decisions, the fair treatment of vulnerable customers, and adherence to regulatory expectations including the FCA’s Consumer Duty.

The client commissioned SX3 to conduct a detailed audit across paid, declined and abandoned travel claims, alongside complaints and appeals, to evaluate whether policyholders were receiving fair, timely, and accurate claims outcomes.

Our Approach:

SX3 conducted a structured and comprehensive review designed to assess both technical accuracy and customer experience:

Targeted Sampling Across Claim Types: We reviewed 195 closed claims, including a balanced mix of paid and declined claims.

Outcome-Focused Audit Trail: Our audit tested performance across six core areas:

• Indemnity
• Customer Handling
• Complaints
• Walkaways
• Appeals
• Quantum

Each was measured against documented processes and FCA principles on fair outcomes.

Remote Audit Execution: Working with remote system access, secure file downloads and time zone differences, we conducted the audit remotely with daily contact with the TPA’s  client management team across Europe for queries and clarifications.

Case-Level Insight: Detailed feedback and examples were provided for each area of concern, alongside a thematic analysis.

Findings:

The audit revealed a mixed performance, with key strengths in certain areas and notable gaps in others:

Overall Handling Performance Score: 88.9% across all areas audited, but with significant variation by category.

Technical Decision-Making (Indemnity): 87.9% pass rate. Errors in applying policy terms led to inconsistent decisions – some claims paid when not covered and others declined incorrectly.

Customer Experience: 91.5% score, driven by good communication on most files. However, failures in recognising vulnerability and inconsistent messaging impacted some outcomes.

Complaints Handling: Scored just 47.2%, with missed expressions of dissatisfaction and delays in escalation. Some Final Decision Letters lacked appropriate tone or explanation.

Walkaways: 66.7% score, reflecting inconsistent reminder activity when customers failed to provide key documents.

Claim Repudiation Appeals: 91.7% performance, but some appeals avoidable with better initial assessments.

Quantum: 93.8% accuracy in assessing value, though isolated errors in benefit application and excess calculation were identified.

Solution Delivered

SX3 delivered a full written audit report including:

• Audit scores and pass/fail data across six key areas
• Specific examples of customer detriment and potential leakage
• Case studies to highlight learning opportunities
• Recommendations to improve complaints handling, system flexibility, handler training, and vulnerability identification

The report was used by the insurer and TPA to identify root causes and initiate targeted operational improvements.

Results:

Customer Duty Assurance: The audit helped evidence whether the TPA’s operating model aligned with the FCA’s expectations on fair value and fair treatment.

Process Improvements Initiated: Steps were taken to improve handler training, complaints escalation, and recognition of vulnerability, with further system changes under consideration.

Insight-Driven Collaboration: The findings created a shared understanding between insurer and TPA, enabling a more aligned approach to delivering consistent customer outcomes

Conclusion

This audit underscores the importance of aligning remote & overseas claims models with regulatory expectations and customer needs. By providing impartial, detailed analysis across a representative claims sample, SX3 helped drive improvements in both technical quality and the overall customer experience — reinforcing the insurer’s commitment to transparency, fairness, and compliance.

Contact SX3 today to discover how we can help your business deliver fair, consistent and compliant claims handling

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Nicola brings a wealth of expertise in claims management, counter-fraud operations, and litigation. She has led teams and developed claims processes for leading insurers and consultancies, including managing audits and quality assurance programs. Her ability to build strong client relationships and implement effective claims strategies makes her an asset to SX3.

Matthew joins us with over 25 years of experience in claims operations, client account management, and auditing. He has held senior roles in firms such as DAC Beachcroft and Plexus Law, where he managed client accounts, oversaw complex audits, and drove operational improvements. His experience aligns perfectly with SX3’s focus on delivering tailored solutions.

Our Client Services Managers are dedicated to serving for our clients, overseeing audit and consultancy delivery, maintaining quality assurance, and providing bespoke advice and support. These appointments ensures we maintain our reputation for excellence and our commitment to staying at the forefront of the industry – delivering insights that help insurers achieve better outcomes and operational efficiencies.

Adrian Gilbert, Managing Director of SX3, commented:

“The creation of these new roles reflects the continued growth of our business and the increasing trust our clients place in us to deliver independent, high-quality claims auditing and consultancy services. Nic and Matt both bring highly relevant expertise and complementary skills that will strengthen our client servicing capabilities.

Our growth has been driven by a clear focus on delivering practical, actionable insights for our clients, helping them adapt to an increasingly complex insurance landscape. These appointments reaffirm our commitment to maintaining the highest standards of quality and value as we expand our services.”

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Making the decision to work with SX3

In March 2022, aged 44, I decided to quit the security of my full-time job working for a broker. I made this decision not having another job to go to after I worked my notice. I knew I still needed an income, but I also needed to get away from the mundane 9-5, five days a week. More flexibility was a must, precious time with my partner and dog Stanley is more important than anything else to me. I needed to find that right balance.

Whilst looking online, I came across SX3 Claims Consultants, and was intrigued by the website. I soon had a conversation with Adrian Gilbert, MD of SX3, who was very informative of what SX3 could offer me. I explained to Adrian what I was looking for and why. Adrian listened intently and then explained the whole process to me, and how SX3 worked. I was free to accept or decline work, put myself forward for many jobs, or not at all. There was so much flexibility surrounding freelance work.

Making friends – Claims is a people business

Within a few weeks, I got a call asking if I was available to do an audit onsite, up north. The team of Associates I would be working with was explained to me and upon meeting them, our personalities clicked. I mention this because SX3 are very good at matching up Associates on jobs, or missions, as I like to call them! A lot of consideration goes into this. I enjoyed regular audits and met the same Associates time after time. A bond was forming between us, friendships, to which I can say these people will be lifelong friends.  As well as onsite audits, there are also lots of remote audits.

Apart from meeting Associates, I also get to meet the people who I am conducting the audits for, SX3 clients – Claims Directors, MD’s, COO’s, Claims Managers etc. Again, making beneficial relationships, having conversations with them in and out of the office.

Using Expertise to add Value for the Client

The audits I conduct are claims reviews and fraud audits, both of which are equally challenging. I need to be on my A game when completing these. If a trend is spotted within the audit, what is that trend?  How can this be avoided in future?  If so, once identified, this will be fed back to the client. Daily debriefs occur whereby feedback is given to the client and an open discussion occurs around the day’s findings. Challenges occur from the client at every instance.  I need to know I have an explainable rationale and be confident in my responses if I do not agree with their challenge.  Whilst these sessions can be difficult and demanding, they are there for a reason.

Continuing to make My Own Decisions

All I can say to anyone thinking about making the leap into Consulting / Auditing is that life as a Consultant is good, very good, much better than I envisaged. I am the decision maker, I decide when to take time off, when to go on my holidays and for what length of time. Obviously, I am going off my own experience, but no regrets here.  If you must have independent confirmation, you just have to Stanley!

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Richard has over 25 years’ experience leading claims audit functions within the insurance sector, ranging from large multinationals to start-up companies. Richard brings senior risk and compliance expertise as well as extensive experience in project management, reinsurance, captive management, and claims outsourcing.

Richard said ‘I am delighted to be joining SX3 with its strong track record and impressive range of clients for its claims audit function. I look forward to the challenge of taking the service to the next stage in scale while maintaining the highest levels of quality customer service.’

Adrian Gilbert, MD SX3 said ‘Richard brings incredible expertise and experience to the Audit role, he really is a perfect fit. Richard’s arrival completes the management team that will build the future of the company. I am delighted to welcome Richard on board.’

Richard starts as SX3 Head of Audit Services 22 May 2023.

The formal press release can be viewed here.

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Permacrisis? This has undoubtably been a difficult year for many. The pandemic hangover continues to plague supply chains and resources, now compounded by the global economic impact of the war in Ukraine. In the UK, financial instability has followed political instability, with a tough budget just round the corner.  

For our industry, there is simply no room now for poor performance, with claims inflation at the front of many minds and adequacy of claims reserves under sharp focus from the regulators. The need for expert advice and informed support has never been greater. 

However, I am unfashionably optimistic and think the word “crisis” has been overused. In part this is because business has been, and looks likely to remain, good, but also because I know Claims Managers are adept at responding well to crises, and I am confident colleagues and clients will continue to rise to the challenges ahead. Read on. 

Claims Inflation

As headlined in our autumn update in 2021, supply chain challenges (resource and materials shortages) have been driving up claims costs, exacerbated by increased energy costs. In August 2022, Credit Suisse were predicting UK Motor claims inflation could be 11% for FY 2022, although by way of a silver lining, their latest prediction (October 2022) has reduced that prediction to 10% with the reduction in second hand car values outstripping the inflationary impact of increased repair cycle times. 

Claims operations have come under yet further pressure to find ways to work more efficiently and to save on indemnity spend. Performance benchmarks are in high demand at the moment, with insurers seeking to understand how their performance compared with their peers. SX3 are helping by getting under the skin of that benchmarking data with independent expert assessments of claims handling and operational performance. 

From the performance reviews we have carried out in 2022 so far, the headline average claims handling audit performance score is 92.65%, which is an improvement from the 2021 headline average of 90.99%.  

However, leakage rates in 2022 have increased. This is not as surprising as you might imagine given that to establish an accurate leakage rate, you need to look at settled claims, so these results represent the legacy of poorer claims handling performance seen in 2021. We would expect leakage rates, on average, to improve in 2023. 

Claims Reserving

There has been increased focus on claims reserving practices, following the demise of several motor insurers amid question marks over the adequacy of their claims reserves. The Gibraltar Financial Services Commission acted swiftly, requesting their regulated members to review their reserving performance.  

SX3 supported a number of insurers this year with their reviews, looking at reserving philosophies, procedures, control processes and exception management. This enabled insurers to identify process weaknesses plus benefitting from an independent assessment of the adequacy of their claims reserves. Whilst these reviews can sometimes be a headache for insurers, we do our best to ease the pain through the transparency of our approach, putting any risks identified into proper context, and ensuring plenty of communication throughout the process – all delivered by auditors that actually have a deep knowledge of claims!  

Whiplash Reforms

From the most recent headline data published by OIC (up to 30th Sept 22), 351,409 claims have been submitted though the OIC Portal to date, with monthly new notifications levelling out at c. 24,000 per month.  

Questions are still being asked on both sides about the effectiveness of the reforms, with 67.3% of claims registered in the portal being declared mixed tariff injuries (tariff defined whiplash mixed with injuries that fall outside the tariff definition of a whiplash), although not all those claims still feature non whiplash elements when the medical report is produced.  

Delays in medical reports being produced to the compensators was the key issue raised when SX3 conducted its market survey early in the year, and with only 54,368 OIC claims settled / closed to date, this issue hasn’t as yet been resolved.  

Judicial rulings on the correct method to value mixed tariff injuries are still awaited following the fast tracking of test cases and will be key to helping quantify the benefits of these reforms.

Reasons To Be Cheerful SX3 (apologies to Ian Dury and the Blockheads!) 

1. Last month, SX3 celebrated completing its 8th year of trading, and 8th straight year of growth. Our service capability has developed and broadened. We have invested significantly in the reengineered our audit processes in response to increased volumes, and significantly strengthened our resources.  
2. Our ESG investments continue with support to Alzheimer’s charities and also to John Green’s sterling work providing supplies to Ukraine. 
3. Party Time – 17th November to celebrate with clients and friends in London. If you would like to join us, please get in touch with Lisa.Fielder@sx3.co.uk.  

If you, or you know someone who is looking for a change, we are always interested in talented claims professionals to join our team, just get in touch. 

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SX3’s auditing teams always consist of experienced claims practitioners, people who have first-hand experience of working in claims operations or claims service providers. This deep understanding of the subject matter they are auditing leads to audit results that provide independent and reliable insight.

Nonetheless, assessing and quantifying performance on claims handling is always likely to involve a degree of opinion. When it comes to acting as an expert witness, things are more challenging – to quote Kimberly Owen from Stewarts Law in a recent blog Potential pitfalls when providing expert evidence in personal injury cases :

“The primary duty of an expert witness is to the court, and this duty overrides any obligation to the party instructing or paying the expert. Expert evidence must be objective, independent, unbiased and based on all material facts.”

The blog goes on to specify common pitfalls for the inexperienced expert witness.

SX3 uses proven, robust procedures for ensuring independent assessment in its audits but we still had to go further to meet the needs of the court.

The Brief

The SX3 client had provided capacity to an MGA. That MGA outsourced their claims handling to a TPA with delegated authority to handle and settle the claims. The insurance account was loss making and the arrangement had ceased.

The capacity provider blamed the losses primarily on poor claims handling by the TPA, so it commenced a Commercial Court action in the High Court seeking millions of pounds in damages.

Audits carried out prior to the legal action were considered by the court to be inadequate and indeed provided conflicting results. SX3 were instructed by the court, on behalf of the Claimant, to provide an independent, objective and detailed assessment of the claims handling performance by the TPA and to quantify any losses arising from failures of the claims handling.

How can the Court be Helped to Accept the Audit Results?

SX3’s claims audit methodology is designed to minimise subjectivity, so that we deliver objective and transparent results.

The challenge when acting as expert witness, is to ensure all stakeholders in the process, especially those who were less familiar with assessing claims performance, could appreciate how we had come to our results.

SX3 created an assessment manual which documented the pre-defined assessment criteria to be used to evaluate the audit results.  38 separate tests were developed to assess the claims handling performance. If any failure was identified in these tests, the auditor then would consider if any losses (leakage) arose from that failure.

Given the fundamental allegations in the legal case, the assessment of claims handling performance was set against the following criteria in descending order:

1. Was there a relevant process or service standard contractually agreed by the TPA?
2. If not, was there an industry practice / legal precedent / FOS decision in place to use as a benchmark?
3. If not, apply an SX3 assessment, based on the detailed assessment manual produced.

To support the assessment process further, average market settlement data was obtained from Verisk to create benchmarks for some of the more common negotiated settlement areas. Any other areas, the auditors provided clear calculations and rationale for each failure and any leakage arising from that failure.

One added complication was that the book of claims was transferred from the defendant to a TPA chosen by the claimant. The auditors therefore had to determine if any errors by the handling of the claimants TPA impacted adversely the outcome of the claim.

Working closely with the Client to Ensure most effective outcome

During the auditing, daily query sessions were conducted with the TPA to ensure data and handling methods were understood – nothing was left to interpretation. Weekly updates were provided to the claimant’s legal representatives.

Recognising the implications of the results being produced by this review, every effort was taken to avoid overstating any failures or losses, whilst still ensuring all performance areas were fully assessed and quantified to help ensure parties had a clear understanding of the extent of potential failures and losses.

Outcome

The audit identified a substantial number of quantifiable failures. SX3 had quantified the extent and financial amount of those failures, providing written and verbal opinions on the degree of tolerance to be allowed within the results and citing key examples to bring the data to life.

The evidence produced by SX3 convinced the claimant to continue to pursue their claim. Within 3 months, the Claimant and Defendants reached a negotiated settlement bringing early closure of what was likely to be a costly and protracted legal process.

SX3 Case Studies – are published to help prospective clients understand how value opportunities for the use of our services may be found and to give an insight as to how SX3 works with clients. All projects are unique and have more detail than can be expressed here.

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SX3 has now reached its 7th year anniversary, representing 20% of my working life (see final paragraph for the maths), and it’s been a busy few months for the company. Its also been a busy period for a Claims Sector still feeling the effects the pandemic’s short and long term societal impact, Civil Procedure changes, and Brexit legacies. Claim volumes are increasing, new working patterns settling in, new claims processes bedding down, supply chain materials and resources being outstripped by demand, exacerbated by increased energy costs and new Covid variants. Following are some of our observations from our sector that I think reflect these impacts, and that we expect to continue to develop into next year. 

SX3 Audits – Claims Handling Performance Trend 

We have seen a slight dip in claims handling performance from all audits performed in the past 6 months, with the headline claims performance average score now at 90.52% compared to 91.94% for the previous 6 months. We are not surprised by this trend given the factors mentioned above, but exacerbating matters seems to be an increase some claims organisations are experiencing in staff turnover. With many claims people having embraced a homeworking lifestyle to a lessor or greater degree, some are seeking roles elsewhere in the country or outside the claims sector altogether. Coupling this with the factors mentioned in our introduction, this certainly a challanging time for resourcing claims operations just as we move into the usually busier winter months.

Whiplash Reforms Update 

The first two Official Injury Claim (OIC) quarterly reports were issued on 21st Oct and 8th Dec. It is important to remember that this data does not encompass all PI claims registered during those quarters. It represents claims arising from accidents from 31st May 2021 to 31st August, and only those where the value of the claim is realistically expected to be below £5000, and excluding vulnerable road users. By way of example, a further 52,349 Claim Notification Forms (CNFs) were submitted to the MoJ Portal during June to August; therefore, we should take any long-term volume trend predictions at this stage with a pinch of salt.  

What we do know from the OIC data is that in the first 6 months: 

• 114,077 claims were started via the OIC Portal 
• 103,513 were represented claims. That’s 90.74%, which is in line with most industry predictions. 
• Only 209 claimants were represented by a CMC. 

Some commentators pointed to the lower-than-expected percentage of claims (25.1%) requesting an uplift due to an exceptional injury, exceptional circumstances or both. However, perhaps more telling is the types of injuries being claimed for. Whilst 92.8% of the total claims submitted in the OIC Portal included a whiplash tariff element, 66.24% of those whiplash claims also cited additional injuries that will require some of the General Damages to be assessed outside the whiplash tariff. 

A “Mixed Injury Working Group”, with representatives from both claimant and compensator organisations, has been set up to work collaboratively to fast track test cases through the Court of Appeal to establish Court guidance for valuing General Damages for cases with a mixture of tariff and non-tariff general damages. In the meantime, compensators and claimants are faced with the task of trying to establish and agree sensible, pragmatic valuations of these claims or face testing the dispute resolution processes. These claims will take time to mature and be ready to settle, and we will be watching this space closely over the coming months as this issue progresses. 

Claims Technology – Data 

Managers of claims operations are constantly looking for innovations and technology to help improve their customer experience, reduce operating costs, improve decision making and empower their teams. One of the silver linings of the pandemic restrictions seems to be the appetite it created for the adoption of new technology. But, you can’t just layer new tech onto old tech, the underlying data has to be sound for technology solutions to be truly effective. That was the message we heard time and time again this year from industry commentators. Here are some excerpts:   

Sustainable solutions need to be built on solid foundations – quality data is the “Holy Grail” 

SX3 News – 7th Heaven 

SX3 has now completed its 7th full year supporting the insurance claims industry. Highlights of the year include: 

• Increasing our base of audit clients, including a significant reserves due diligence assignment from a leading reinsurer. Read about it here: Delivering a Rapid Response to Due Diligence Need
• SX3 acted as an expert witness for a commercial dispute between an insurance capacity provider and TPA, independently assessing and quantifying failures of the claims handling 
• Validating an insurer’s in house Quality Assurance by performing a peer review of their in-house audit processes. Read the story here: Peer Review of In-House Audit Processes
• Delivering analytical and strategic decision support to an insurer through a significant change in their claims operating model. The full story is here: Keeping the client in control throughout the change process.

Our team continues to grow, and with now increased geographical coverage with the inclusion of 2 Ireland based consultants.

On a personal note, a small career milestone was passed recently as I marked 35 years working in our industry. I wouldn’t quite say the time has flown by, but it has certainly been interesting. More – Adrian Gilbert – Lessons from 35 Years in Claims

On behalf of all of us at SX3, I thank you for your continued engagement and we wish you the very best for the seasonal festivities. We look forward to seeing you in person in the next year and indeed, the next 7 years. 

Adrian
Tel +44 (0)1702 567 501

PS

We have a few SX3: 7 years (copper) commemorative insulated/reusable drink cups available. I want them to go to good homes in our Claims community. If you would like one, just get in touch.

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