At the second annual Casualty Insights Conference held yesterday in New York, Stan Galanski, president and CEO of Navigators, cautioned those in attendance about not so much the frequency of claims he’s seeing in the industry, but the severity of each. Galanski referenced the below clip from the movie The Graduate:
After which he exclaimed, “Today, I have one word for you…severity!”
Of course, we need to look no further than 2011 catastrophes to see the impact of severity on claims. Though there may have been fewer claims compared with the past, the impact has been much more costly than any previous year on record. But there are other, maybe not so well known, examples of high severity claims cases, such as:
- Middleton vs Collins: The case of an 8-year-old boy who was intentionally set on fire by a neighbor. The reward to the family of the victim was a record $150 billion.
- Pacesetter Inc. vs Nervicon: The case of St. Jude subsidiary Pacesetter and former engineer Yonging Zou, who used his access to confidential information to found a competing company, Nervicon, in China. St. Jude Medical won $2.3 billion in the case.
- Allison vs Exxon Mobil Corp: A 2006 gasoline leak in Maryland was the impetus to a lawsuit filed on behalf of 160 plaintiffs. The jury awarded $1.5 billion in punitive damages in addition to $495 million in compensation for damage.
- DuPont vs Kolon Industries Inc.: The theft of trade secrets regarding the manufacture of Kevlar prompted this lawsuit, in which a jury found South Korea-based Kolon guilty and awarded DuPont $919.9 million.
These are just a few examples of the harrowing severity of recent claims.
So why is this happening? What has prompted this uptick in severity? Galanski points to a “cultural shift,” explaining that “things have changed and there’s a strong sentiment stemming from the financial crisis — one which says we must punish the evil doers.”
If this is true, big businesses, if they haven’t already, should prepare accordingly.