Costs for materials and energy continue to climb in 2023, caused by a number of situations including the continued fallout from the Covid Pandemic, Brexit and the war in Ukraine. The impact of inflation has become widely apparent across insurance products - particularly for lines such as property, motor, business and construction. But what does this mean for insurance customers?

What is claims inflation?

Claims inflation is the increase in the amount it would cost to settle an insurance claim. This is due to rising costs in labour, materials and energy - so a rebuilding project in 2023 will cost significantly more than it would have done a year ago.

Why are my insurance premiums increasing?

Simply, because the cost and demand of raw materials parts and labour has increased significantly, to address this claims inflation, your insurer will increase your insurance premiums to cover the rise. Insurers calculate the increase in your insurance premium by using an index that they apply to the declared value of items, energy and labour costs. The result reflects the current, true cost of reinstatement, rather than how much it cost back when you first took out your policy.

What should I do about my insurance premiums?

Brokers will work closely with you to determine the best policy that suits your needs, but there are steps you can take yourself to keep your insurance premiums as low as possible, show insurers you are a good risk and mitigate any potential loss:

• For property insurance customers: Carry out all essential maintenance and conduct regular checks on your roof and gutters. Record any activities where you are keeping guttering clear of debris, mending and renewing areas of concern
• For business insurance customers: Devise a business interruption/recovery plan before you experience an incident to help to keep future costs in check. Make sure your indemnity periods are adequate as mentioned below
• For motor insurance customers: Install a dash cam in your car to record any incidents or accidents. This could help to speed up the claims process and helps the insurer to confirm that you are not committing insurance fraud, which is one of the causes behind higher insurance premiums.

If you are a business insurance customer, whilst reviewing your business interruption/recovery plan, it is advisable to check the indemnity period for business interruption cover to account for supply chain issues and delays - Brexit, Covid-19 and the war in Ukraine have resulted in workplace shortages and supply chain delays, which means that repair work could take significantly longer than it would have in previous years. The British Insurance Brokers’ Association also recommends calculating your gross profit carefully to avoid underinsuring, as well as taking into account your business’s predicted growth. Your advisor can help you with this.

For most contents insurance customers, your items will be insured on the amount it would cost to replace them as new - insurers will take inflation into account when you make a claim, so make sure you declare the items’ values accurately when purchasing your policy. For harder-to-value items and rebuild costs, it is advisable to use a specialist property surveyor to determine the value, ensuring they are Royal Institution of Chartered Surveyors (RICS) certified.

Generally, as an insurance customer, the more detail and data you can provide about the incident, and the sooner you can provide it, the sooner the insurer can intervene and the claim can be settled—and the greater the potential to minimise costs.