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How inflation is impacting claims costs: the current outlook

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We are all experiencing the impact of increased inflation both in our personal lives and in our work lives. The Office for National Statistics reports that in the 12 months to March 2023, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 8.9% 1. Almost all goods and services in the UK and Ireland are currently more expensive than they were previously, and one might assume that insurance claims costs have increased as a result. 


When assessing our claims data, we are currently seeing higher claims costs directly caused by inflation. Additionally, geopolitical factors, supply chain disruption and other related challenges also play a role in our claims’ trends. This article will outline the general factors impacting the increasing cost of claims across many of our business lines in the UK and Ireland. 


Travel and medical costs  


The leisure travel industry is slowly returning to something near pre-pandemic levels of activity. Business travel is still not back to pre-pandemic levels, but we are seeing an increase in overall claims volumes.  

Medical care across the world has increased in price, primarily due to inflation. A recent report forecast significant cost increases in 2023, estimating rises of 6.5% in North America, 8% in Europe and the UK, and up to 19% in Latin America 2. As the cost of healthcare in the US has increased, cost containment mitigation strategies have become more important than ever. 




The impact of increased healthcare costs in most jurisdictions also results in rising post-accident recovery costs. Medical experts may potentially elongate settlement cycle times. In some territories – the US in particular – as courts catch up with their post COVID-19 backlog of cases, we are observing unexpected judicial behaviour. For example, social inflation has led to unprecedented sums awarded in damages, which puts pressure on insurance and reinsurance pricing. Wages have risen sharply leading to potential increases in loss of income compensation and a need for insureds to be diligent to ensure payroll declarations are accurate.   


Material damage  


In March of this year, the UK government reported that the cost of building materials for ‘All work’ had increased by 8.7% compared with March 2022 3. This means that if a building needs significant repairs, the cost of doing so is much higher. As a result, underinsurance, particularly in the property sector, is a key concern both for brokers and policyholders. 

Increased materials costs are not only due to inflation but many related factors. In the UK, the combined impact of the COVID-19 pandemic and Brexit led to a shortage of materials and difficulty importing them.  Additionally, global supply chains are experiencing disruption because of the war in Ukraine 4. All of this is impacting the marine, aviation and motor industries in particular.  


Business interruption 


Supply chain disruption, such as the cargo ship Ever Given blocking the Suez Canal in 2021, has also affected business interruption (BI) over the past couple of years. In property, there are now much longer lead times to obtain materials – evidenced by the significant decline in the number of brick and concrete block deliveries year on year 5 – and fewer workers available to perform repairs. In the UK it’s reported that 96% of construction firms are experiencing skilled labour shortages 6. This is also the case in the marine 7 and aviation 8 industries. These factors combined mean that it can take much longer for companies or individuals to return to business as usual following a claim. For us, this means that BI claims costs have increased. Longer periods of BI can also lead to issues around maximum indemnity periods, which may leave insureds exposed.  


Insureds’ behaviour 


Economic pressure on businesses and individuals may drive changes in claims frequency. The inclination to claim can increase as businesses are under cost pressures and reduced investment in risk management initiatives. In addition, claims can become more complex to conclude due to the unusual trading trends we’re currently seeing.    




There are a number of different factors impacting claims costs at the moment, many of which are in addition to inflation. Current economic forecasts predict that UK inflation won’t increase any further and will fall throughout 2023 and 2024 9. However, though inflation might fall, the additional challenges insureds are facing such as materials shortages, social inflation and supply chain problems could continue, thus keeping claims costs high. Claims expertise and understanding are crucial and will deliver the best solutions for customers.   



All content in this material is for general information purposes only. It does not constitute personal advice or a recommendation to any individual or business of any product or service. Please refer to the policy documentation issued for full terms and conditions of coverage.

Chubb European Group SE (CEG) is an undertaking governed by the provisions of the French insurance code with registration number 450 327 374 RCS Nanterre. Registered office: La Tour Carpe Diem, 31 Place des Corolles, Esplanade Nord, 92400 Courbevoie, France. CEG has fully paid share capital of €896,176,662. UK business address: 100 Leadenhall Street, London EC3A 3BP. Authorised and supervised by the French Prudential Supervision and Resolution Authority (4, Place de Budapest, CS 92459, 75436 PARIS CEDEX 09) and authorised and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request.

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