Written by James Mulcahy
The end of financial year is fast approaching. In what has been a challenging economic period for motor and property vehicle insurers with rising repair and claim costs, a strong performance for recoveries departments in the final quarter of the financial year will be important.
Where insurers are unable to resolve recovery claims with third parties, it is worth considering whether the claim should be outsourced for litigation or sent to a mercantile recovery agent. In doing so, it’s important to understand the things that will impact the likelihood of recovering funds before the end of the financial year.
Below are several factors we suggest considering when deciding what action to take on outstanding motor and property recovery claims between now and 30 June.
Uncontentious Claims
With ongoing staff shortages, many insurers continue to experience delays in receiving payment of their demands in matters where neither liability nor quantum are disputed by a third party. In many respects, claims of this nature are the easiest to deal with, and represent the best opportunity, in our view, for insurers to take action before the end of financial year to improve their overall recovery performance. Any matters outsourced for litigation also tend to carry less financial risk, as legal costs will very often be recoverable.
In many cases where uncontentious claims are outsourced for litigation, a third party business will make payment of the claim in full, including of legal costs and interest (depending on the jurisdiction), following service of the Statement of Claim/Complaint, but prior to the Defence falling due. It’s important to therefore factor in the usual timeframes involved in commencing litigation, and how they interplay with the end of financial year.
Depending on the State or Territory, defendants to Court proceedings in lower Courts have between 14 and 28 days to pay or defend an issued claim following service of the proceeding. The process of serving the proceeding generally takes 1 to 3 weeks from the time it is issued. This means there is usually a period of between 3 and 7 weeks between the time a proceeding is issued and the time payment is due.
Using this as a guide, if insurers elect to commence litigation on non-contentious claims with a view to recovering before the end of the financial year, we recommend outsourcing the claim before mid-May. This means taking steps from mid-April to identify relevant claims. Matters outsourced after mid-May might still result in recoveries before 30 June, but it becomes less likely as the days and weeks pass.
Litigation or Mercantile Agent?
An issue related to non-contentious claims recoveries is whether to outsource for litigation or send to a mercantile recovery agent. This is very much ‘horses for courses’ and different approaches are taken in the industry. However, litigation will usually be more appealing during the fourth quarter of the financial year, because:
- litigating non-contentious matters is generally a quick process. Third parties have strict deadlines to respond to Court proceedings, meaning there is more certainty as to the timeframe involved; and
- depending on the jurisdiction, professional legal costs can be recovered where litigation is commenced. This can partially or completely offset the legal spend incurred by the insurer, therefore maximising the recovery rate.
Delaying Tactics and Other Set-Backs
Recovery on claims can sometimes be frustrated in circumstances where there is little or no dispute. Examples include:
- where third parties request parts invoices for repairs;
- where third parties seek justifications for repair periods where claims include hire car components;
- where there are long wait times when phoning third party insurers, making it difficult to progress claims;
- where third parties request versions and diagrams when the collision circumstances are clear and uncontentious (for example, a simple hit in rear collision);
- where third parties request documents relating to one aspect of the demand, which hold up the entire payment (for example, a photograph of ‘cut’ restraints on a child seat); and
- where delays arise because demands are ‘with assessing’ for extended periods.
We recommend that recoveries teams treat the above scenarios with caution. In many situations, there will be no legitimate basis upon which payment should be refused. In some claims, the matters listed above, if not properly responded to, will delay the resolution of the claim until the following financial year.
The Countdown Has Started
The decisions made over the next few weeks in regards to recoveries will likely have a significant bearing on the overall performance for the quarter. Through deciding upon clear approaches to the above issues, recoveries departments can ensure they are well placed to maximise their results over this period.
If you wish to discuss this decision, please contact James Mulcahy on 03 9947 4530 or any member of the Ligeti Partners team on 03 9947 4500.
