Inflation and Increasing Claims Costs
The past couple of years has seen inflation rise in the UK to a staggering 10.1 percent, with no sign of things plateauing as yet. With the prices of everything going up, from food to the high street, what has this meant for insurance premiums? Premiums are certainly on the rise and have been in the ascent for some time, with factors other than inflation contributing greatly. Brexit, Covid, the war in Ukraine and an increase in catastrophic weather events have all created turbulent market conditions, including the insurance market. The UK had it good for many years with low inflation, but rates hit double figures in the first half of 2023. Now, it’s finally on a slow descent, but unfortunately inflationary pressure is still being felt, especially when coupled with unsettled global markets. Where premiums have increased significantly is in the motor and property markets, by 21% for motor insurance and 10% for home insurance, compared with the same time period last year. This has proved challenging for customers and the wider market alike. These premium increases are still not quite matching rising claims costs, though, with an increase for motor claims of 29% and 11% for household – compared to the same period last year – and these costs don’t show any signs of coming back down.
Motor InsuranceCosts are mounting all round. Repairs are seeing an increase of up to 46%. Replacement car costs have escalated to 52%, and vehicle hire costs have also gone up, not aided by customers having to remain in courtesy cars for longer due to waiting on supply chain issues. Payouts following vehicle thefts have increased by 53%, partly due to the average price of second-hand cars being higher following the lack of new vehicles on the car market since the Covid-19 pandemic. Vehicle technology is fuelling claims costs, too. Advanced vehicle safety features, although contributing to safer driving experiences, have led to vehicles becoming increasingly complex and time-intensive to repair, with re-sets and re-calibration the norm, instead of simple repairs. It also means specific parts can be harder to source. “Depending on the part these can be often readily available, therefore the repair can be completed faster than having to wait for a new part to arrive. It’s also more cost-effective, with green parts costing up to 75% less than their newly manufactured equivalent”
Property InsuranceSupply networks to the property market have been coming under increased pressure from various factors including: Higher transport and shipping costs, plus fuel increases A worldwide shortage in materials such as steel, cement and plastics – meaning increased prices and prolonged delivery expectations Construction industry labour shortages and rising labour costs An increase in alternative accommodation costs “Inflation has reached levels not seen for three or four decades in some countries and is not expected to ease significantly in the coming months. Determining and updating insured values is therefore a pressing concern for everyone. It is important that businesses regularly monitor and adjust the value of assets, as well as the implications for the costs of replacement or business interruption, in order to ensure they are fully reimbursed post-loss.” As the market remains in turmoil, it’s crucial for both insurers and brokers to continue to deliver competently for their customers, to provide knowledge and reassurance, and to keep a keen eye on providing great value. We must also strive to develop new and continuing ways to keep a check on premiums and rising claim costs through technological innovation. Would you like to learn more? Do you think you would benefit from a review of your home or motor policy, or premiums? Contact one of our expert team today on 01245 449069 or by email email@example.com.
Other blogs that may interest you:Motor Fleet: 8 tips to keep your insurance cost down The Property Insurance Market Guide to Motor Claims Inflation
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