The current ‘perfect storm’ of macroeconomic conditions could lead to an increase in fraud, arson and claims costs, says insurer’s chief claims officer
The rolling crises of the past few years could reach a peak this year, causing “a crescendo moment” and resulting in an uptick of insurance claims, according to Graham Gibson, chief claims officer at Allianz Insurance.
The claims landscape has been anything but still in recent years. The Covid-19 pandemic alone threw up a multitude of claims challenges in 2020 and 2021, most notably around business interruption insurance.
Last year, meanwhile, was dominated by supply chain issues – driven by Brexit, the pandemic and war in Ukraine – which caused shortages in sourcing raw materials and repair parts, as well as helped to fuel escalating inflation.
According to Gibson, this supply chain slowdown is expected to continue for at least the first half of 2023.
Other headwinds that could hit the UK this year include the continuing cost of living crisis, the unknown ramifications of China deserting its strict zero Covid strategy and the impact of the UK government ending its energy bill support scheme in March 2023.
Gibson tells Insurance Times: “[This year] is going to be tough - we’re expecting a bit of a crescendo moment.
“There’s [a] lot of data coming out that people are relying on credit. We’ve got mortgages moving [and] the taxation burden is going up by an average of £831 this year.
“It creates a perfect storm. I’m worried about a crescendo point where all this comes together at once.
“When that has happened historically, [we enter] a period where there’s fraud, where there’s an increase in arson, where there are environmental issues that you see when people find it tough.”
Unoccupied property claims potential
This economic landscape means that insurers may have to consider the impact on unoccupied properties - possibly through further cold snaps this winter - and assess which risk management strategies they can put in place.
Gibson says: “We have to think about what that means from a claims perspective.
“Fraud and arson are risks on unoccupied premises. We’ve seen claims involving squatters and raves being held in unoccupied premises. It is not a huge amount, but that type of claim is a possibility.
“If a premises is unoccupied, then [making] sure it is secure is the number one priority. There’s lots of things that can be done, like improving locks, boarding up windows, etc.
“Then, [insureds can do] things like draining water systems if [they are] not going to keep the building heated, [or] switching off the electrical supply [to] reduce the risk of fire.”
Green parts plugging gaps
Last year’s supply chain issues have hit the motor industry particularly hard.
Gibson explains that as new car production has been reduced drastically, so has the supply of spare parts that are made in conjunction with new cars rolling off the assembly line.
Allianz Insurance is using a number of strategies to counter this squeeze on getting parts in a timely manner, to keep its customers on the road – this includes the use of green or recycled car parts.
Gibson says: “We have changed our ultimate loss threshold, so we are writing off more vehicles. We’ve got a really good contract with our [credit] hire company, so that is helping keep our customers mobile.
“We’re [also] leaning on green parts because our salvage provider comes from a fast-moving consumer goods environment.
“[It has] all the technology in place around just in time delivery. When our engineers are out in the field looking at a car, they can call in to the green parts portfolio and see if there’s something there that can help.”
Allianz partnered with salvage and recycling company Synetiq in May 2021 to launch the mygreenparts platform, which digitises the supply of recycled spare parts.
Claims inflation is also expected to continue through the first half of 2023, although it may ease in the second half of the year as supply chain issues hopefully begin to abate.
Gibson explains: “Very sadly, claims inflation has been significantly higher than inflation itself.
“We are reliant on fuel prices - whether it be [the] fuel usage of our repairers or our inspection engineers on the road.
“Repairing cars is energy intensive. One of our group repairers said that pre-Covid, their energy bill was £100,000 a month - that went up to £400,000 a month because they don’t get the benefit of government relief. It demonstrates the rate of inflation we are seeing in the insurance world.”