A Comprehensive Guide to Claims Inflation
Claims inflation is hitting the insurance industry, meaning that not just costs, but insurance policies and premiums, are increasing in price. So what is claims inflation, and what’s driving it?
What is Claims Inflation?
Claims inflation is when the average cost of a claim rises due to a lack of availability – or a rise in price – of goods, services and labour which is used to replace or repair a person or business’s property after an insured loss.
Why is Claims Inflation Happening?
Because of the ongoing cost of living crisis, with prices for electricity, gas, fuel, food and other costs rising across the board, this has a knock-on effect when it comes to the cost of a claim to the insurer. Inflation is monitored through the Consumer Price Index (CPI), and it has risen considerably in the past 12 months.
There are multiple reasons that could be attributed to the rise in costs, including the hangover from Covid-19, the impact of Brexit, climate change and supply chain disruption are just some of the reasons for the increase in costs.
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Covid-19
Many businesses could not operate as normal, which reduced economic activity and money flow. Furlough was also introduced.
The demand for online shopping surged, leading to a strain on the existing infrastructure.
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Brexit
Queues at the borders are slowing down the movement of goods into and out of the UK.
The use of European labour in the UK has reduced, creating labour shortages in some sectors like construction and transportation.
Supply Chain Issues
A global shortage in microchips like semiconductors has seen the availability of electrical goods reduce, meaning prices increase.
The construction industry has had problems sourcing raw materials as well as labour.
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Climate Change
Extreme weather events, and the increasing volume of them, is impacting all sectors.
Wetter weather and stronger storms are seeing an increase in weather-related claims.
Hotter and drier weather increases the risk of bushfires, leading to property damage.
What Industries is Claims Inflation Affecting?
There doesn’t seem to be any industry that isn’t affected by the rise in costs or lack of availability for products or services, however, there are many different reasons why different sectors are feeling the effects of inflation.
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Transport
Rising fuel costs are rising price increases in the transport industry. With a reliance on fossil fuels, the increased cost of that has a significant impact on the operating costs of many different transport providers around the country.
Staffing issues are also having an impact on how many flights airlines can run and how many bus services can operate, leading to a cutback in services and cancellation of flights.
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Manufacturing
The disruption of the global supply chain, which can be put down to both Covid-19 and Brexit, is having an impact, meaning materials are hard to source or currently unavailable, driving up costs and slowing down the production of goods. This has probably been most notable in the shortage of semiconductor chips, chips which power most modern electronic devices.
Hospitality
The cancellation of many different events had a big impact on the industry during Covid-19, and the sector is still recovering. However, as businesses are trying to get back on their feet, they’ve been hit by a double-blow of rising food and energy costs, making it harder to turn a profit and stay in business.
What Can I Do About Claims Inflation?
If you’re worried about your insurance costs rising, the best thing to do is to speak to [broker_name]. If you’ve been affected by some of the bigger issues driving claims inflation – like supply chain issues or rising fuel costs – it’s likely that there will be some knock-on effects in terms of rising insurance costs, but by working with your broker to adapt or improve your existing cover, you can have an insurance policy which better protects you from the causes of claims inflation.
