In this post we’ll examine the underlying causes of the insurance claims inflation pressures we’re seeing in 2023.
What is Insurance Claims Inflation?
Claims inflation means that declared sums insured can become inaccurate and outdated. As a result, many property and business owners might be risking underinsurance without even realising it. We can help you ensure that your insurance still covers you for all your needs, so don’t hesitate to get in touch.
The Influence of Global Events
For the past few years, it feels like we’ve seen one major world-shaking event after another: Brexit, the enforced Covid-19 lockdowns, and the Russian invasion of Ukraine.
These events aren’t directly responsible for the insurance claims inflation pressures we’re currently facing. But they have contributed to a general state of instability and uncertainty.
Construction Labour Costs
The construction sector is now operating on a significantly reduced labour pool. And what labour is available is now a lot more expensive than it was before 2020. For example, average wages in construction have increased by 11% since early 2020. For skilled labourers such as electricians and plumbers the costs are even higher.
Labour shortages will also disrupt the supply chain. This means that even routine repair jobs can cost a lot more than they did previously and can take much longer to resolve.
Material Cost Increases
Rising energy costs means it’s now more expensive to produce necessary construction materials such as steel, bricks, and concrete. For example, the price of steel was at one point 260% higher than it was before 2020. Though the price has now fallen, as of February 2023, it remains 73% higher than its pre-pandemic levels. Also, rising fuel costs means that it’s more expensive to transport materials.
This situation is compounded by new building regulations. The UK is working towards net zero CO2 emissions by 2050. According to the Building Cost Information Service (BICS), complying with these regulations will raise building costs by around 6%.
An Increase to the Claims Lifecycle
Labour shortages, material shortages, and a disrupted supply chain means that most, if not all, property claims will now take substantially longer to resolve.
In some cases, an increased claims lifecycle can lead to further increases to costs. For example, a property owner might need alternative accommodation for the duration of repairs. If repairs take much longer than they used to (and cost much more), then claimants may have to spend much longer than anticipated in alternate accommodation. The costs are going to spiral.
Rising Insurance Premiums
We recently published an article exploring why buildings insurance premiums have risen in 2023. Any repairs or maintenance a building needs will cost much more now than it did in 2020. One way insurers have responded to this has been through raising their insurance premiums.
As a result of this, some policyholders might be tempted to cancel their policies, or else to cut back on their cover. Some property owners might choose to forego contents insurance, for example, as it’s not mandatory.
But you should never risk underinsurance. It’s vital that your insurance adequately reflects your needs. Even though we’re facing a cost-of-living crisis, now not the time to cut back on your insurance. But now is the perfect time to consult with an insurance broker.
Talk to us and we’ll discuss your insurance needs. We can help you ensure you don’t pay for cover you don’t need, without putting yourself at the risk of underinsurance. Read more about the benefits of working with Anthony Jones Insurance Brokers. And if you have any other questions, please don’t hesitate to get in touch.