The cost of living and insurance claims

The cost of living crisis has rippled through the UK and impacted us all in many expected and unexpected ways.

Now, more than ever, insurance customers want certainty when it comes to their coverage and are reliant on a speedy resolution of valid claims to ensure their business gets back to normal.

So, how has the cost of living crisis impacted insurance claims?

The number of claims has increased

It may come as no surprise that our in-house claims team saw the volume of incoming claims increase by over 100% between 2021 and 2022.

What is particularly interesting about this figure is that the variety of claims we’re seeing has shifted quite dramatically as the cost of living has taken hold.

In 2021, 60% of our claims were linked to business equipment – with the other 40% consisting of other insurable matters such as professional indemnity, cyber and liability claims. This is very much considered the ‘norm’ in our area of insurance.

In 2022 however, the overall makeup of the insurance claims we received shifted. Business equipment claims decreased to just 44% of the total claims received. Professional indemnity claims on the other hand, increased to 20% – while the largest increase has seen employers' liability and public liability matters now making up over 30% of our claims book.

More employees and members of the public are claiming

By helping affected third-parties log claims, navigate the legal landscape and negotiate settlements, claims management companies have helped ensure that the process of claiming against someone is now easier and more accessible than ever – even for complex matters.

The increase in the volume of professional indemnity claims, and liability claims in general, appears to be indicative of these financially challenging times and a willingness by third-parties to actively (and, in some cases, aggressively) pursue businesses for exclusively financial resolutions to any dispute – from broken mirrors and scratched windows to a chipped tooth and allegations of libel.

This has of course meant that many claims are being closed at a less rapid pace than anticipated. Greater investigations are needed around liability and causation (insurance speak for the ‘but for’ test, i.e. but for ‘x’ would ‘y’ have occurred?) to ensure that insurers are only responding to and paying valid claims.

A great example of this is for businesses in the beauty industry, where it can be tricky to solely and directly attribute damage caused to a client. For example, if a client made a claim against your hairdressing business for damaging their hair, it’s difficult to prove their hair was damaged in their final highlighting session with you, or as a result of multiple sessions elsewhere over a number of years.

More claims are being abandoned

Among the overall rise in claims being made, we’ve noticed a disproportionate volume of customers who log their insurance claim but then don’t respond to our requests for the further information we need to settle the claim. In 2022, there was a 72% increase in customers who ‘walked away’ from their claim.

Having undertaken a deeper dive into the reasons behind this, we suspect that the key influences on this figure are that the standard excess of £250 may be a barrier to those who are struggling financially, and those who worry about the future effect on their premiums if they proceed with their claim.

To address the former point, we are working with our insurance carriers with a view to reducing the excess across multiple products to ensure that the claims excess is not a barrier to claiming. We want to ensure that our customers are receiving good value for money and are always striving to improve this where we can.

Smaller claims, smaller settlements

Included in our increased claims figure, we have seen a 142% increase in the volume of claims for under £200, as customers seek to get the maximum value from their policies. In 2022, the smallest claim we paid was just £32.50.

It might seem strange to log a claim in spite of a low settlement payment due, however your insurance policy is there to be used.

If you have a valid claim to make, it’s important not to be worried about this having a disproportionate impact on a) your ability to secure an insurance policy or b) your premiums. Typically, one or two claims at less than £500 per year will affect your premium by an average of 6-10% depending on the insurer you use – meaning the impact is minimal.

Finally, perhaps the most interesting shift we’ve seen here at Superscript is that whilst the volume of business equipment claims has increased, we’ve seen an almost 30% decrease in the average claims settlement from £2,043 to £1,460. This is contrary to the trend seen across the insurance market on the whole.

Indeed, many insurers have reported seeing a reduction in claims volumes between 2021 and 2022 but a large increase in average settlement costs for these kinds of claims, linked in part to the advancement in technology and the associated price tag of replacing it!

The key difference for Superscript customers is that many of our insurer clients have chosen to focus on more sustainable claims resolutions, which include the repair of existing equipment or replacement with like-for-like models. An example of this would be replacing a customer's damaged mobile phone or laptop with a fully refurbished replacement, thereby helping to reduce not only the environmental impact but also the overall claims spend.

What does this mean for businesses?

If you are considering amending or reducing your business insurance in order to lower your costs, it’s important to talk to your insurer first. At Superscript, our team will be able to guide you through which covers are ‘essential’ for protecting your business, including against the situations highlighted in this article.

You may also want to consider the following steps:

• Review your insurance documents to check you have the covers you might need
• Take note of the excess you would be liable to pay in the event of a claim
• Don’t be afraid to make a claim, your insurance is there should you need it

Laura Thomas is Claims Manager at Superscript and has over twelve years' experience in the insurance industry.

Laura leads our in-house claims team, which is committed to providing support and guidance to our clients, ensuring every claims experience is a positive one.

Based on claims made to Superscript between 1st January 2021 and 31st December 2022

You may also like:

• How interest rates impact business
• The benefits of choosing an insurer with an in house claims team
• Common reasons claims go unpaid, and how to avoid them