We spoke to Tom England, Head of Claims, to get his insight into what the claims insurance market will look like for the rest of 2025.
2024 brought about another turbulent year for the insurance market. Severe weather events, global and national economic pressures, and changes in the regulatory landscape, together with the speed at which technology continues to advance and shape market expectation, has meant the UK insurance claims community has had to continually adapt and navigate an ever-changing landscape.
Market trends
High inflation
High inflation continues to impact claims costs, and this is especially so in the property and motor markets. Replacement and repair costs have continued to increase through 2024, with analysts predicting that this is likely to continue through the coming year. This is driving insurers to review both their pricing and reserving philosophies.
An Industry review of 2024 has shown that around 79% of commercial and/or domestic buildings in the UK are underinsured. This has led to the application of the pro rata average, resulting in significant reductions in claims settlements. With ongoing inflation, this trend is likely to continue. As a result, it’s advisable that sums insured are regularly reviewed and updated to avoid reduced claims settlement.
PIDR
The change to the Personal Injury Discount Rate (PIDR) in England and Wales was effective from the 11th of January 2025. The Lord Chancellor has taken the decision to move the rate from -0.25% (previously set in 2019) to +0.5%, aligning the rate with the rest of the UK. This change will mean that lower payments are made on the most serious of personal injury claims. To what extent this change will have on rates and reinsurance remains to be seen, given the wider economic landscape.
Consumer Duty Regulations
With the introduction of Consumer Duty Regulations, insurers and brokers alike continue to focus on treating their customers fairly. With the focus on positive client outcomes, particularly in the handling of claims, it is hoped this will generate an improved perception of the industry.
Technological Advancements
The evolution and continual engagement of the Insurance Market with technology will certainly drive improved customer solutions. However, new threats will also emerge. There is no doubt that claims processes underpinned by AI and serviced by digital portals will grow, improving the speed at which claims can be settled. Similar AI processes will continue to enhance the market’s ability to detect fraud but, at the same time, fraudsters will also seek to employ their AI systems to improve their chances of pursuing nefarious claims.
Increasing Cyber Attacks
When considering technology, the threat of cyberattack continues to be a major cause of concern for clients, and having robust cyber security is paramount in today’s digital age. The speed and manner in which the insurance market assists a customer affected by cyberattack is key, and processes in this area continue to be reviewed and refined, leading to improved client experiences when dealing with a crisis.
A recent BIBA review has shown that only 12% of businesses are currently purchasing cyber cover. However, the UK cyber insurance market is quite competitive which should encourage more businesses to purchase this vital cover. It remains important that customers with such policies carefully review their own processes against policy requirements to ensure full adherence.
Climate Change & ESG
The severity and frequency of catastrophic weather events continues to rise, putting a stress on insurers’ resources. From a claim’s perspective, the availability of specialists in the supply chain to assist in the event of significant and/or multiple events is something that the market will be working on throughout 2025. Having the right supply chain solutions in place is key to the successful conclusion of claims emanating from such matters.
The climatic issues being experienced has led to a significant increase in subsidence claims. Customers with ongoing subsidence claims should carefully consider their property placement strategy to avoid the issue of pre-inception damage. Flood claims are also increasing both in frequency and magnitude, and this is causing insurers to reconsider their underwriting strategy when considering properties in known flood affected areas.
The drive towards cleaner energy means that the use of electric powered vehicles and equipment continues to become more prevalent. While they are helping to drive customers’ ESG strategies, claims challenges have inevitably been experienced. The cost and difficulty in repairing electric vehicles and the availability of parts has meant longer repair periods, resulting in prolonged credit hire periods and contributing to overall claims inflation. In addition, the number of fires emanating from electric batteries is also increasing. Commercial risks have had similar issues with fires involving electric forklift trucks, and it is likely that insurers will be reviewing policy conditions and warranties around battery charging.
The picture for 2025
In 2025, continual evolution is non-negotiable, and the claims community must embrace and invest in the innovation of its services whilst adhering to our strict regulatory requirements, to ensure the best client outcomes.
Given the current economic climate, insurers will be seeking to strike a balance between providing a speedy and efficient claims service whilst also ensuring that the correct level of enquiry is undertaken to ensure that only genuine claims are paid at the correct level of quantum. As such, the broker’s role in claims settlement throughout 2025 will be as important as ever.
Our Advice
At PIB we continue to invest heavily in the development of our claims service and are committed to providing claims advocacy of the highest standard to achieve the best possible outcome for clients. We advise that clients taking the following steps:
- Report road traffic accidents to your broker/insurer at the earliest opportunity. This is of paramount importance in mitigating the cost of motor claims. Ensure that you have a robust and efficient reporting process in place so that insurers can act as quickly as possible on customers’ behalf.
- Regularly review their sums insured. Accurate levels of cover will minimise the risk of under insurance and the possibility of insurers applying average, reducing claims payments.
- Where cyber insurance is in place, carefully check that your internal processes and procedures adhere to the requirements within the policy.
- Engage with your broker at the earliest opportunity with any queries that you might have regarding policy response.