Pandemic-fuelled claims inflation is a “major issue” for insurers in Australia, insurance consulting firm Exceedance says, predicting it will probably be another 12 months before the industry sees some relief – and that’s provided the economy is not hit with another disruptive covid variant outbreak.
The observations from Xceedance are backed by recent first-half earnings results from IAG and Suncorp, with the two leading insurers saying their businesses are experiencing underlying inflation.
“Assuming no more virulent strains of Covid-19 emerge and create further disruption, it will likely be 12 months before supply chains return to ‘normal’, easing pricing pressures there,” said Martin Jones Xceedance Australia Client Executive. However, rising fuel prices could impact on supply chains as well, creating more cost pressures.”
Xceedance says the pandemic is partly to blame for driving up claims inflation as months of lockdowns since March 2020 around the world have upended the global supply chain, resulting in material shortages. Insurers are affected by the supply squeeze as it means they have to pay more to secure imported building materials such as timber, all of which feeds into claims costs.
“Dramatic increases in the cost of building products and auto parts have a knock-on effect for insurance claims,” said Jones. “My discussions with insurers confirm that claims inflation is a major issue for them now and spans across most product lines.”
Xceedance urges the insurance industry to consider developing strategies to counter rising claims inflation, cautioning supply chain disruption is not the only factor adding to cost pressure. Social inflation in litigation awards in the court system have “set the bar high” and fuelled claimants’ expectations about what they were entitled to, according to the consultant.
He warned that funded litigation, where third parties, rather than plaintiffs, controlled settlements, was prevalent in Australia. It has already had a major impact on class actions’ frequency and the size of damages awards.
Jones added: “Additionally, insurers’ current litigation models, including extensive use of external law firms, are not always conducive to early settlements. All these issues snowball into major claims inflation.”
This article courtesy of Insurance News. Check out the website at: https://www.insurancenews.com.au/.