Is the industry’s handling of claims inflation damaging its reputation?

There has never been a simple answer to the many factors that drive claims inflation, which range from geopolitical tensions and supply shortages to inaccurate reserving.

Andrew Taylor, claims division director at Aon-owned Griffith and Armour, identified claims inflation as an important trend for this year, commenting in February 2025 that ”claims inflation has risen rapidly in recent years and shows no sign of slowing”.

He continued: ”Inflation in general has seen the costs of goods and services rise and this, along with supply chain disruption, [the] development of technology on vehicles and the provision of support to individuals after serious accidents, has meant claims are more costly to deal with on the whole.”

In the 12 months to June 2025, the Consumer Prices Index (CPI) – which measures the rate of inflation in the UK – was 3.6%. This is an increase on the 3.4% inflation rate recorded for the 12 months to May 2025 and is the highest rate reported since January 2024, according to the Office for National Statistics.

The highest ever rate of inflation in the UK was recorded in the 12 months to October 2022, just after the ramifications of the Covid-19 pandemic. The CPI for this time period was 11.1%

Arguably, the insurance sector is still playing catch up from those tumultuous years, following supply chain upheaval caused by Brexit and pandemic restrictions.

However, the insurance sector has more than just rising costs to consider when looking at the ramifications of claims inflation.

For example, while speaking at the Managing General Agents’ Association’s (MGAA) annual conference on 3 July 2025, Peter Graham, non-executive chairman at Markerstudy, said that the industry is “missing a trick” in its thinking about claims inflation because “the game has changed”.

By this, Graham meant that, by failing to broadly consider the multifaceted elements of claims inflation, the insurance industry could witness a significant impact on its already blighted reputation, with value chain challenges contributing to the narrative that sector firms are “trying to pull the wool over [the] eyes of consumers”.

In his opinion, this service story needs to be “collaboratively” countered to help salvage the sector’s reputation. But how can this be achieved?

Meeting consumer needs

According to Andrew Evans, market director of major risks and broking at Davies and partner at Keoghs, sector specific claims expertise plays a vital role in mitigating the financial and reputational risks driven by claims inflation.

He emphasised that knowing where to find claims insight and understanding how to apply the right strategies or behavioural analysis is “what makes the difference” here. For him, effective claims management should be rooted in an in-depth understanding of claims spend, rather than just focusing on cost.

He explained: “By working with providers [that offer] cross-class, industry or sector led claims [propositions], large corporate businesses can access complete claims management information across their entire book of business – [this offers] a level of claims risk insight not [typically] available through fragmented, class specific approaches.

“This [type of] integrated view supports more strategic claims portfolio management, helping to protect the financial and reputational interests of corporate clients while enabling accurate benchmarking, deeper insight and better informed decision-making.”

Evans added that accessing the right claims data is simply the launch pad for mitigating claims inflation risks that impact the industry’s reputation. He noted: “This goes beyond simply obtaining data. [It] is about translating [data] into actionable insights that drive faster, fairer and more efficient claims outcomes.

“Doing so requires MGAs to strategically design claims operating models from the ground up, ensuring they are not only scalable and compliant, but also agile enough to respond to the evolving needs of policyholders and capacity providers.”

Charlotte Harrison-May, head of carrier and market relationships at claims management firm Gallagher Bassett UK, agreed with Evans. She observed that closing the gap between pricing assumptions and actual claims costs requires “better access to and use of claims performance data”, rather than simply relying on financial figures.

She further encouraged insurance firms to “broaden their modelling lens” in order to keep a “watchful eye on emerging risks”.

Enhancing collaboration

There are many moving parts within the claims value chain that could be hit by inflationary costs, in turn affecting claims service and industry reputation. In fact, on 22 July 2025, the FCA reported that it would be taking action against specific firms after uncovering “concerning evidence of poor claims handling practices”.

However, “providing there is close engagement and partnership between the insurer, MGA and its appointed adjusters, there should be little room for disconnect” between actual claims costs and loss ratio assumptions, noted Neil Baldwin, executive director at loss adjusting business McLarens.

He explained that most insurers and MGAs have internal actuarial teams and claims technicians, meaning that claim and reserve movements are forensically monitored. This means that businesses have the opportunity to nip in the bud any detrimental results of claims inflation that could impact reputation.

One organisational metric that is particularly meaningful on the subject of claims is the total cost of risk (TCOR) – this measures a company’s overall expenses related to risk, including insurance premiums, retained losses, risk control measures, administrative costs and indirect costs associated with risk events. The TCOR is designed keep track of how much an organisation spends to manage its risks. 

Evans explained that “in many sectors, claim spend represents the largest component of the TCOR, alongside premium”. This can often be driven by claims inflation, which can increase both the cost of claims themselves and the premiums charged by insurers.

Evans added that “the actual claims cost can be as little as 6% to 8% of TCOR, highlighting why it’s such a critical area for attention.”

He continued: “Over the past 12 to 15 months, brokers have been encouraging greater attention to claims within the TCOR equation, promoting enhanced collaboration with insurers and legal claims service providers.”

Restoring public trust

Moving away from modesty and promoting industry successes could have a particular part to play in restoring public trust towards the claims sector. For example, Graham commented at the MGAA Conference that the industry “could be more open” about what it has achieved, especially bearing in mind it pays around 98% of claims.

For Baldwin, “education is key” in mitigating claims inflation linked reputation challenges. This includes “ensuring all risk exposures are identified and reviewed” as well as making sure “adequate time is spent with insurers, MGAs and brokers to ensure any risk transfer mechanisms are fit for purpose”.

He added: “Regular reviews are essential given the volatility we have experienced in recent years with claims inflation. An appreciation is needed on the hidden costs involved in any self-insured retention intentions.

“Good news stories should continue in the media to demonstrate the true value of insurance, at both personal and business levels.”

However, Owen Pugh, chief operating officer at Claims Consortium Group, told Insurance Times that while insurers could look to mitigate the impact of claims inflation by adjusting financial levers, such as tightening indemnity spend or streamlining coverage, delivering a product that consumers actually value remains key.

He explained: “There’s a greater opportunity to tackle inflation through the way claims are processed, in a manner that benefits both insurers and customers. 

“It’s about spending smarter, not simply spending less – protecting service quality while supporting the bottom line. By applying intelligent triage, technology-led decision making and strong supply chain control, claims management companies can help deliver real efficiencies.”

For Harrison-May, it is clear that the insurance industry needs to evolve to address these challenges.

She said: “Ultimately, our work is focused on controlling the total cost of risk – not just reacting to inflation or trends, but anticipating these through early intervention and modelling.

“If the industry does not adapt, we risk widening the gap between pricing assumptions and actual claims costs, which can erode trust with policyholders and limit commercial growth.”