The reviews of the discount rate in all three jurisdictions began in July 2024, and it is clear that further work will be required to establish the appropriate index for inflation in Scotland and Northern Ireland before the next series of reviews commence in 2029. In Scotland and Northern Ireland the rates, which remain single, were announced on 26 September 2024 as +0.5% for both jurisdictions after the regulations were aligned prior to the review. In England and Wales, the announcement is due on or before 11 January 2025.  This is the first review in which the expert panel has been involved and it is yet to be seen where their advice has landed and whether the Lord Chancellor will adopt it. 

The costs of vehicle hire and repairs continue to rise beyond the level of inflation. With the Labour government launching its taskforce to look into the cost of motor insurance, these are two areas that are likely to be a focus. The General Terms of Agreement group has recently announced new rates and work will continue into looking at how the Agreement works and how it can be improved to remove cost and friction. Further progress is anticipated on this in 2025.

The number and value of construction insurance claims will continue to rise. While inflation may be slowing, building costs are still expected to increase by 15% over the next five years. Recurring themes include increased borrowing costs, skilled labour shortages and higher material costs. Coupled with rampant contractor insolvency, regulatory changes under the Building Safety Act and ever increasing plant and tool theft, construction insurers could be facing challenging times. With London retaking the top spot for the most expensive place to build globally, and multiple cities across the UK and Ireland filling the top 30, the domestic market will be particularly exposed.

The new Transport Minister continues to push for motor insurance policies to become more affordable, and has launched its taskforce to "identify the factors behind rapidly rising premiums" and "agree solutions to keep costs down". The Association of British Insurers has already published its ten-point roadmap aimed at tackling costs for all drivers, and insurers are committed to better explaining how premiums are calculated and steps policyholders can take to reduce costs. The move to lower costs will pick up speed next year, especially if inflation continues to sit at around 2% per annum.

The global political upheaval is leading to geopolitical risk scenarios that will influence the scope of cover. The risk scenarios are diverse and differ not only according to the dimension of the violence exercised and the possible political objectives associated with it. General exclusions for war, sanctions clauses and territorial exclusions are becoming more relevant, including for business interruption and contingent business interruption. Climate change and natural hazards will also influence the claims picture, with legislative changes on climate-neutral transformation having a significant impact on risk and regulation. Inflation and rising prices are also causing insurance values to increase significantly, requiring adjustment to sums insured (to avoid underinsurance), limits, business interruption periods and premium increases.

The problem of underinsurance and the application of average is worsening and professional negligence claims against insurance brokers (for the shortfall in claims payments) are expected to increase. Indeed, a recent survey found that a staggering 46% of commercial properties were likely to be underinsured, with the average shortfall in cover being 40%. There has been significant inflation in rebuild and repair costs (labour and materials) and delays are extending periods of business interruption. Claim payments are being reduced, often significantly, due to such underinsurance. A broker is not a surveyor or valuer, but is under a duty to advise clients on the need to keep the adequacy of building sums insured under regular review, as well as warning of the potential consequences of average being applied where there is underinsurance. Further, the broker must advise on an appropriate length of business interruption insurance for a client's business. Without such clear advice, clients facing shortfalls in claim payments are likely to look to their insurance brokers for compensation.

The volume of claims has reached its highest level since the introduction of the Personal Injuries Guidelines in 2021. The Guidelines may have prompted a downward recalibration of general damages but this has been accompanied by significant inflation in claimant legal costs and special damages, fuelled by rises in healthcare and living costs. Increases in both population and employment levels over the course 2023/2024 means we can expect annual new claim numbers to rise to approximately 25,000, with the legal costs associated with circuit court claims in particular increasing. Although overall claim numbers will remain below the pre-pandemic average of 33,000, we expect that in 2025 claims settled via litigation will continue to represent the largest proportion of total liability claims costs to insurers in Ireland.

The Civil Liability (Amendment) Act 2017 addressed concerns around the deficiencies in the lump sum system by introducing Periodic Payment Orders (PPOs). When resolving catastrophic injury claims, PPOs provide an alternative to single lump sum payments, offering an ongoing annual payment over the lifetime of the injured person. In 2019, the High Court found that PPOs using the legislative indexation alone would lead to under-compensation. Following a Report of the Inter Departmental Working Group, the Minister for Justice has accepted that the PPO indexation rate should be based on a combination of the Harmonised Index of Consumer Prices (HICP) and Annual Rate of Change (ARC) in nominal hourly health earnings. Work is now underway on drafting regulations which will facilitate a revised and dynamic PPO scheme which assesses healthcare costs and future inflation.

Argentina will continue to see the macroeconomic transformation present in 2024, marked by lower inflation, a recalibrated exchange rate and a decrease in country risk, which will translate into a revaluation of Argentine bonds and stocks. The new government's commitment to deregulation will continue, especially in the insurance sector, encouraging greater economic freedom and eliminating foreign exchange restrictions. However, the local market is facing an insolvency crisis, which has led to the adoption of precautionary measures by the Argentine Insurance Regulator, whose possible solutions include mergers and acquisitions, portfolio transfers or liquidation. Despite these challenges, Argentina's sectors with the greatest potential - agriculture, energy and mining - are ripe for investment, especially in specific insurance products. The agricultural sector, in particular, may see growing interest in parametric insurance as a viable risk management solution, in line with the country's changing economic landscape.

The Personal Injury Discount Rate (PIDR) review in England and Wales will be complete by 11 January 2025 (and possibly sooner). This will either see no change to the discount rate, a rate change, or more radical changes such as different rates for different periods of loss or different types of loss (e.g. different rates for care and for earnings). Many in the market anticipate the retention of a single discount rate which will be at a positive level compared to the current -0.25%. Support for this view has been taken from the decision (November 2023) in the Isle of Man to adopt a 1% discount rate, based on advice provided by the Government Actuary's Department (GAD) for the UK. The GAD's advice assumed a continuation of favourable gilt yields (which at the time were, and still are, around 1.5% to 2% higher than the GAD's 2019 analysis) and a fall in inflation, economic trends which have continued. Further support for this view can now be found from the 26 September 2024 announcement that the discount rate in Scotland and Northern Ireland will increase (from -0.75% and -1.5% respectively) to +0.5%.

The first bellwether trial against social media companies for addictive product design and other allegations will potentially upend traditional principles on product liability, design of digital products and corporate responsibility. The trial is part of US multi-district litigation brought on behalf of children and scheduled to take place in late 2025. The action alleges intentional creation of products with addictive engagement, driving compulsive use and algorithmic manipulation, resulting in various physical and emotional harms, including death. European regulators, rather than litigators, are challenging social media platforms with the European Commission opening formal proceedings under the Digital Services Act. While we do not expect civil claims to necessarily follow in Europe, the impact of the Representative Actions Directive may alter perceptions on pursuing these types of claims.

Corporations recognise that tackling environmental, social and governance (ESG) issues can give them a competitive advantage and provide opportunities for growth. With greater scrutiny of ESG targets by consumers, employees, investors and regulators, ESG considerations are increasingly an important focus in M&A deals. Buyers are critically assessing sellers’ commitments to sustainability and energy conservation, operational efficiencies and social responsibility as part of the acquisition process, to ensure ESG statements stack up and their merging corporate cultures will align. Significant differences in ESG ideology and performance criteria could be an obstacle to integration post-merger and may result in claims if mismanaged. ESG scoring – which uses quantitative measurements to independently verify ESG factors – is a growing market and it is expected to become more common place in the M&A due diligence process.