Claims inflation was already biting, but now the consequences of the Russia-Ukraine war will add further pressure

By Content Director Saxon East


Saxon East

One decision by one man changed the world for everyone.

Russian president Vladimir Putin’s decision to invade Ukraine is being felt all across the world - and soon UK insurers will be caught up in the consequences. 

Amid energy prices soaring, additional costs affected by the war will feed into both the production and transportation of goods. This will eventually make its way into claims inflation. 

The big question is how seriously impacted claims inflation will be as a result of this. The answer is likely to be quite a bit.

The cost of materials was high even before the war. 

Construction material costs in the UK, for example, had reached a 40-year high, based on the annual growth of the BCIS Materials Cost Index, reported the Royal Institution of Chartered Surveyors last November.

Then there were rises in wage inflation. For example, wages for lorry drivers will be going up amid the national shortage of these professionals. 

Added to all of this, UK insurers’ profits are likely to take hit from the three recent storms. 

Gross insured losses following the February weather events are expected to be as much as €5bn (£4.17bn) for the UK, Germany and Netherlands, Fitch Ratings predicted.

And now, finally, the war in Ukraine, which will unleash sky-high energy costs. 

Premium rises 

Insurers may well pass on higher prices to customers at a time when they are still adjusting to the FCA’s pricing and fair value crackdown.

Brokers will also need to have tough conversations. Commercial clients will be expected to pay higher premiums amid their own inflationary pressures.

They may well push for the cheapest prices available, sparking a broker scramble to get the best quotes.

Managing claims costs

Apart from premium rises, managing claims costs will also be key.

Some insurers, such as Direct Line and Aviva, own their own motor repair network. This means they have more control of costs. 

Their scale also gives them potentially better deals on materials. 

Some insurers - if they have not already - will use the home working revolution to re-evaluate their office properties. A consolidation of office space will give a boost to the bottom line. 

Ultimately though, there’s only so much they can do to manage costs. 

To maintain profitability, targeted premium increases will be needed.

At a time when the UK is going through a cost of living crisis, once again the insurance industry will end up as the bad guy.