Describing inflation as ‘one of the single biggest issues’ for the sector, how do insurers plan to respond?

By Editor Katie Scott

As a multitude of insurers are reporting their 2021 year-end financial results, one underlying watchword for the year ahead is consistently being repeated by trendspotting chief executives: inflation.

According to the Office for National Statistics’ Consumer price inflation, UK: January 2022 report, published on 16 February 2022, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 4.9% in the 12 months to January 2022.

Katie Scott_bw_path

Katie Scott

Alone, the Consumer Prices Index (CPI) – defined as the rate at which the prices of goods and services bought by households increase or decrease – rose by 5.5% in the 12 months to January 2022.

Adam Winslow, chief executive of general insurance, UK and Ireland at Aviva, told me that “inflation is one of the single biggest issues from a claims and end customer pricing perspective”.

He continued: “We are seeing a lot of inflationary pressures in the supply chain – that could be wage inflation, that could be parts, that could be labour, all of those things.

“Especially on the back of recent storms, I think the whole supply chain is under pressure - from a provision perspective and from a cost perspective.”

Ageas boss Ant Middle agreed. When I asked him last week what claims trends he will be keeping an eye on this year, he responded with “everything inflation”.

He told me: “The cost of materials, clearly that’s on our minds. The cost of labour. Wages are inflating as well. There are inflationary pressures that very much will impact personal lines business generally.”

Combating climbing costs

But what can insurers actually do to mitigate the impact of inflation on claims processes?

For Winslow, Aviva will be utilising its sheer size to drive deals, as well as benefiting from having greater control over claims costs thanks to its “wholly-owned motor repair network”.

He explained: “There’s a lot we’re doing to try and offset [inflation]. An example in motor claims would be our use of Solus, our wholly-owned motor repair network, and the fact that we have more levers on the cost, the labour and the charging in that model [compared to the] open market.

“And obviously, Aviva does benefit from a certain size and scale of buying power in the market. So, we continue to try and work with our suppliers to get the best possible deal – and, in turn, pass [that] on to our customers through the pricing and proposition that we can offer them.”

Middle, meanwhile, aims to be “cognisant” of the different inflationary pressures set to hit in 2022, in a bid to ensure that Ageas is “in a position to manage that and respond”.

He said: “As we think about our claims cost evolution, we’ll have to make sure that we are cognisant of all those pressures and responding in terms of our diligence in our underwriting and pricing. We approach that with eyes wide open and we’ll make sure that we manage that effectively.

“We have to expect that those inflationary pressures will hit the market generally this year and we’ll all have to be in a position to manage that and respond.”

Claims operations have certainly had a tough start to the year. Excessive raw material costs and supply chain challenges remain from last year following the fallout from the Covid-19 pandemic, yet Storms Dudley, Eunice and Franklin gleefully played devil’s advocate in February 2022 to cause claims.

For example, global wind-related insured losses arising from Storms Dudley and Eunice are expected to reach between €3bn (£2.5bn) and €4.5bn (£3.7bn), according to risk modelling firm RMS.

It even identified Storm Eunice as the most damaging European windstorm event since Storm Kyrill in 2007 – this definitely does not ease inflation impacts on property repair processes.

Brokers have a tricky job ahead balancing customers’ expectations around claims service and the potential for insurer pricing to creep up to combat rising claims costs.

The FCA may have sought to level the pricing playing field with its January fair value regulations, but it looks like the UK economy may have other plans.