It’s no secret that we have all been or will be affected by the cost of living increases in the UK so it’s fair to say it seems to be the main thing on everyone’s minds right now. From food prices sneaking up and energy bills quadrupling we are left wondering what else is inflation going to affect? 

Inflation will affect different parts of the insurance market at various speeds because the cause of price increases is varied across the market. 

For example, the Motor Insurance market is now starting to suffer increased claim costs because of increased repairer’s costs, and this is slowly filtering through the claims processes and now being noticed by the insurance underwriters. The pandemic saw claims at a record low, as there were less people on the roads, and some Insurer underwriters have commented this has created a false accounting history. In other words, claims are again coming thick and fast, which some insurers haven’t yet priced back in. Presently motor insurance premiums are at a record low, but we think the pressures are now too great even in this very competitive market, and prices will now start to rise. 

We have already seen one motor insurer (Sabre) reporting a claims cost inflation of 12% which undoubtedly will be passed on to its customers.  

Even before the pandemic insurers have been very concerned with the huge cost of repairing electric vehicles (EV). Whether an insurer chooses to cover EV’s or not, they still may be faced with expensive third party damage claims their clients may cause to such vehicles. With more and more of these EV’s on the road then premiums were set to increase even before the cost-of-living crisis.

It’s tough to estimate the scale of premiums rises over the next 12 months, but our guess would be to expect a minimum of 10%.       

With some similarity Property Insurance premiums are also at a record low, but there are two driving factors set to change this perhaps dramatically. 

It is no secret there has been a huge increase in the cost of building materials, noticed straight after the pandemic shut-downs. Instantly, this influences the rebuilding cost which policyholders must declare to the insurer, which is utilised as the basis for calculating premium. So premiums are set to rise straight away although hidden within the higher sums insured being covered for the same property. 

Insurers are already recommending clients review their sums insured upwards, urgently between 12-17%. The upper level of 17% isn’t out of touch, the Building Cost Information Service (BICS) who advise industry specialists such as Chartered Surveyors, tasked with valuing buildings, has reported increases of 20% to rebuild costs.  

The second driving factor on Property premiums is Insurers will already be suffering from the immediate shortfall in cover against the increased repair costs in claims, and it’s easy to see how profits will be hit hard in the short term. It will take some nerve for underwriters not to pass on these costs through rate rises. So in summary, higher sums insured charged at higher rates, and the same building is set to now be much more expensive to insure, and we estimate 15% over the next 12 months.

Some Business Insurance prices have seen little change in rates, such as Office cover which is still relatively untouched by the pandemic or cost of living crisis. But we suspect rates will slowly start to rise with insurers back-office administration costs now creeping upwards. Insurers need to pay their underwriters and claims team, and heat their offices the same as everyone else. These increased costs to insurers may be relatively low in regards to other running expenses such as claims ratios, so we’re hopeful premiums won’t be as affected as Motor or Property.   

The same may be said for other types of business cover, such as Retail, Leisure Insurance and larger more complex commercial cases. But then there are other specific areas of business have been far less fortunate. The insurance industry has been quick to act on Russian sanctions and for some businesses trading globally and into this sector, whether their products were directly sanctioned by the UK Government or not, their risks have become uninsurable overnight.     The only good news is the amount of competition still available in the UK insurance market which will keep inflation in check better than any other temporary fix the government might come up with. We at AIC are even more aware of our role in seeking out the best deal for our customers, and with access to more insurers than most other brokers we promise to keep pricing under control. 

Our advisers will give you guidance and provide you advice on the cover areas essential to you and provide quotations from our panel of insurers. Please phone 01442 242400 or contact us today.

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