Will claims inflation affect underinsurance?

Alex_Johnson

The market is in a difficult place. It feels like claims inflation for the insurance companies I speak to is getting out of control. Not only does this mean claims that were priced for a few months back could be +20% more costly, thus affecting a carriers bottom line, it also means that pricing models which had been relatively stable for many years are now not really relevant. This is causing more reactive and manual pricing and what often seems like "guesstimation".

I am sure we have all seen this first hand with premium increases in policies for everyday coverage.... Even when you have had the same policy for years and never claimed against it, the price of insurance is going else. If you are like me, it has made me look elsewhere or even consider not buying cover.

Do we think this will mean customers (both people and organizations) buy less insurance with the preference to "self-insure" due to price sensitivity? Ultimately it is surely going to have an effect on good customer retention and does it risk insurers making more desperate underwriting decisions and bringing in customers who are much higher risk or even fraudulent?

Areefih_Ghaith

100% think self- insuring will happen more often as premiums rise to cover the claims inflation, I think probably in personal lines such as pet, contents, tech where people feel more in control of the risk as opposed to travel for example where there are a lot more external factors at play. Think people will also be more likely to commit fraud (without maybe even realising) leading to invalid policies when it comes to car insurance claims, for example I've already seen on social media people talking about how they can change their job titles to get better rates (e.g. journalists).

Alex_Johnson

And do we think a wave of insurance vs self-insuring makes the risk landscape harder for carriers? Personally I think so.

A single view of risk becomes more difficult when people enter and exit the market sporadically and across different books of business.

I think it also potentially opens the door to manipulation of the insurance process through quote - claim.

So it is not more important than ever to be smarter in using the data and insights you have now, in order to start reducing claims leakage and costs in order to ensure lower price increases but also better underwriting going forward...

Shyam_Bhatt

Another factor to consider is that insurers are now putting out more "basic" policies with less coverage - this may push people to accept the risk and "self-insure" more as there are now cheaper alternatives.