The current economic climate has had a significant impact on motor claims, with claim costs rising due to inflationary pressures. In particular, the increase in economic hardship has led to an increase in motor claims. Since individuals are struggling financially, they may be more likely to file a claim in the hopes of receiving compensation for their losses. Whereas before, financial pressures weren’t as severe, so companies could cover the costs themselves to keep this off their claims experience, and in turn keep their renewal premium down.
Additionally, global supply chain issues and a lack of available parts and materials have majorly contributed to rising claims inflation in the motor industry. Not only does it impact the claim costs, this also increases the longevity of open claims because parts are not readily available at local dealerships, so they are having to be ordered in for overseas. As a result, insurance companies are facing increased pressure to manage the rising costs of motor claims, and close claims in a timely manner.
Although there are just some things that we can’t change, such as the supply chain, appointing an Insurance Broker like CentriCity to manage your claims is definitely in your best interest. Our in-house claims management allows us to monitor and track the progress of all your claims under one roof, where our experienced team specialise in navigating through the current economic climate to get the fastest results for you and your business.
Another impact of the current economic climate on motor claims is an increase in fraudulent claims due to financial desperation. With so many households impacted by inflation and the rising cost of living, the potential for fraud is likely to increase. In fact, leading UK insurer Aviva reported a 13% increase in insurance claims tainted with fraud in 2021. Insurance fraud occurs when individuals commit deliberate deception to obtain an illegitimate gain.
Furthermore, unemployment is on the rise. With more individuals out of work, there has been a significant increase in the number of claims filed for vehicle theft or break-ins. As people out of work become more desperate for money, they tend to lean towards criminal activities for a fast pay-out, such as the theft of burglary of a vehicle. Commercial vehicles are one of the most common vehicles that are broken into, robbed, or stolen because of the likelihood of high value tools and equipment being stored in the back for easy pickings.
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The UK inflation rate hit 9.9% in September 2022 and is predicted to reach 18% during 2023. The cost of living crisis is seldom out of the headlines and the ramifications of the war in Ukraine, global supply issues and shortages of key raw materials and components are being felt across most industrial sectors. In a survey, 78% of SMEs said they see the cost of living crisis as their greatest threat but how many have actually considered what it means for their insurance protection?
The temptation could be to forego some covers, reduce cover limits. Whilst this creates greater exposures at any time, it is a particularly dangerous strategy during a time of rampant inflation. Even as things stand, many types of business should be reviewing their policies’ sums insured and considering whether to increase them, not decrease them.
This is particularly true for any construction-sector business. Between May 2021 and May 2022, the All Work construction material price index rose by a staggering 27.2%. The value of contracts underwritten by Construction All Risks and Erection All Risks policies is particularly affected and insured’s could find themselves underinsured, unless they review their cover. The ramifications of being underinsured are profound, putting a business at risk of having a claim completely turned down, with cover cancelled; or only being paid out partially, in a ratio linked to the degree of underinsurance.
Inflationary pressures on raw material costs and supply chain issues will also bring project delays and business interruption. Companies must check that they are insured for such disruption and able to absorb delays. Having Credit Insurance, to safeguard against supplier insolvency, is also something to consider along with robust Legal Expenses Insurance including Construction Contract Disputes Cover.
As a specialist Construction Insurance Broker, we are on hand to help you through these turbulent times, providing guidance and delivering flexible and competitive solutions that can truly make the difference.
For help or guidance with your insurance policy, please contact us today!
Call: 020 3830 7060
Email: info@centricitybrokers.com
Inflation is a word re-entering daily conversation, after many years’ absence. Everything is going up in price – food, petrol and diesel, labour and more. But how does this impact on insurance?
With certain types of insurance, such as motor insurance and property insurance, inflation directly affects the prices of the components required to ‘fix’ the insured vehicle or property, following a crash or damage scenario. However, whilst inflation has an impact on vehicle repair costs, later reflected in premiums, it is particularly problematic within property claims.
Property insurance relies on the insured correctly assessing their ‘sum insured’ – the property’s value (rebuild cost). The components influencing this have all soared in cost. Raw materials have rocketed in price, due to global supply issues, shortages caused by Covid-19, shipping problems, and even lockdown DIY mania.
Brexit has reduced the number of workers in the construction and transport sectors, pushing up labour costs, now also influenced by the minimum wage increase of April 2022. Labourers are now less willing to work longer hours, further squeezing the labour supply chain.
The cost of some property repairs is also influenced by the requirement to incorporate more expensive ‘green’ materials and solutions, to help meet environmental targets.
Many homeowners unfortunately set their property’s sum insured when first taking out home insurance, but then never review it, simply allowing their policy to roll over. In times of low inflation, that may not be such an issue, but when inflation is soaring, so too are property rebuild costs.
Although this may, at face value, only appear to be an issue if a property suffered a total loss, perhaps due to a fire or explosion, that is not so. Being ‘underinsured’, by setting too low a sum insured, affects anyone who is insuring a home or commercial property.
Insurers can view underinsurance in two ways – as either a fraudulent attempt to reduce premiums, or as a genuine mistake. Either way, the insured loses out significantly. An insurer can either void the policy completely, if they find the property underinsured, or will apply ‘average’ to the claim. Here, they look at the percentage of underinsurance and use it to calculate a much-reduced pay out.
For instance, if a property has a rebuild cost of £600,000, but is only insured for £500,000, it is only insured for 83.3% of it’s value. If you suffered damage amounting to £50,000, and the insurer agrees to pay anything, you would most likely only receive a payment of £41,650 (83.3%), less the policy excess.
When calculating your sum insured, it is not just the property’s market value you need to consider but all the other costs – architects and surveyors’ fees, potential site clearance costs, building materials, labour, planning charges and more. Commissioning a Royal Institution of Chartered Surveyors’ (RICS) valuation can assist with your setting of the sum insured, but do remember to then add VAT. Getting the sums wrong could be disastrous.
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As you broker, one of the many areas we can assist with is ensuring your sums insured are adequate, working with a wide range of suppliers and surveyors, to properly protect your business and your future.
Get in touch today to speak to one of our team, or leave a comment below and we will get back to you!