More insurance litigation in tough times

General insurers need to brace themselves for a higher level of fraudulent claims and litigation, according to new research released today by Deloitte and J.P. Morgan.

The J.P. Morgan Deloitte 2008 General Insurance Industry Survey revealed profitability had remained largely unchanged in the sector between 2007 and 2008, but participants had differing views with respect to classes of insurance, with some expecting sharp improvements in combined ratios in personal lines coupled with a significant deterioration in long tail commercial lines.

Commenting on the survey outcome, Deloitte partner Stuart Alexander said the current weaker economic conditions could be expected to have an adverse impact on claims.

“Generally speaking, the number of fraudulent claims and litigation tends to increase during weak economic conditions, which can then have an impact on professional indemnity, directors and officers, workers compensation and commercial property insurance,” he said.

J.P. Morgan senior insurance analyst Siddharth Parameswaran said he was expecting pressure on profits this year before a pick up in 2010.

“General insurance companies are likely to face less financial pressure stemming from the financial crisis than life insurers and banks,” he said.