Future-Proofing Insurance: Tackling Legacy Claims and Social Inflation

By: John White

The Challenges of Legacy Claims

According to our research, 90% of insurance carriers in Australia have reported that legacy claims remain a key challenge to their profitability and efficiency, compared to 76% globally.

In parallel, the cost of handling and resolving insurance claims has risen. Several macro factors — including inflation, climate change, and shifts in customer expectations — are driving this increase and presenting additional challenges to closing legacy claims. As a result, insurers may encounter:

• Operational and resource challenges: The long-tail nature of legacy claims intensifies the capacity burden on insurers, forcing them to allocate staff and capital to managing old claims.
• Financial impact and cost inflation: The inherent complexities of legacy claims contribute to rising legal fees, administrative expenses and higher settlement costs.
• Loss of reputation and customer trust: Delayed outcomes because of legacy claims can erode trust between policyholders, insurers and providers.

Social Inflation's Growing Impact

Social inflation continues to be a complex issue with profound implications for insurers, influenced by several factors:

• Growing appetite for litigation, which can add complexity and lengthy legal proceedings.
• The rising costs of goods, services, and living expenses, which elevate the baseline costs of maintaining and resolving a claim.
• The evolving regulatory landscape resetting compliance expectations for both customers and insurer operations.

Tackling This Two-Pronged Challenge

The dual impact of legacy claims and social inflation is making it increasingly challenging for insurers to predict and underwrite risks accurately, protect their reputation, and ensure appropriate allocations to future growth. To navigate this, our research identified the following approaches:

• Strategic partnership is key: To grow, insurers are seeking expert partners to handle legacy claims to ensure the insurer is adequately resourced to drive future growth. Insurers are investing in partners equipped with the right technology and professional expertise to address legacy claims and mitigate costs.
• Leveraging data analytics: Advanced data analytics can help uncover hidden patterns and emerging risks in legacy claims, enabling informed decisions and proactive management.
• Optimising risk assessment: Nearly half of Australian insurers reported that they dedicated litigation management resources as a response to increasing claims costs. In addition, 44% of insurers are focused on improving risk assessment strategies, modifying coverage limits and adjusting pricing.

Overall, the research suggests that insurers are shifting to non-pricing-related strategies to manage this challenge.

Rise of Alternative Resolution Methods

In a market increasingly shaped by social inflation, insurers are looking for a more efficient, affordable, and relationship-focused approach to resolving claims. Consequently, 62% of Australian insurers are opting for alternative dispute resolution methods as part of claims settlement strategies. These methods can streamline settlement timeframes and reduce overall costs.

Key Takeaways for Insurers

• As social inflation persists, insurers must proactively address this challenge to influence its cost.
• Strategic partnerships with claims management experts can ensure legacy claims are handled with care, and insurers can focus on the future growth of their business.
• Identifying and focusing on key performance benchmarking metrics will help insurers set realistic goals, track progress, and align strategies with industry best practices.

Collaborating with an experienced claims management provider that has a deep understanding of the global and local markets can help insurers move forward with confidence.

Read The Carrier Perspective: 2025 Claims Insights whitepaper for more insights about the insurance market in Australia.