Briefing: Inflation to test industry and clients alike

By Jon Guy

It may have been a record attendance in Manchester for trade body Biba’s annual conference this month (11 and 12 May 2022), but there was a single word on the majority of industry professionals’ lips.

As the event began, it did so accompanied by the release of the latest UK gross domestic product (GDP) figures, which has the nation on the brink of recession.

The Office for National Statistics’ GDP first quarterly estimate, UK: January to March 2022 bulletin, published on 12 May 2022, revealed that UK GDP is thought to have increased by 0.8% in quarter one this year – this equates to an 8.7% uptick compared to 2021’s first quarter.

The cause of this increase is the issue which is currently keeping brokers and underwriters awake at night – inflation.

This week, inflation figures for April will be released. Economists forecast a rise from March’s 7% to 9.1%, while the Bank of England has warned that inflation is likely to surpass 10% in the months to come.

This topic was discussed in a number of sessions at Biba’s conference and was also the dominant theme for talks between brokers, underwriters and journalists given the potential far-reaching implications for the industry and its clients.

Underinsurance potential

The rising costs of many materials is pushing claims costs to new highs, further pressing on the hardening rates of recent years and pushing them closer to dipping below technical rates.

The war in Ukraine, meanwhile, is having an effect on the global supply chain. When hostilities cease, the rebuilding of the country is set to put further pressure on the access to and cost of raw materials.

For the liability classes, changing regulation has increased the level of awards at a time when certain professions are struggling to find cover as new exposures arise - particularly in the construction sector following the Grenfell Tower enquiry and ongoing restrictions around cladding.

For insurers, concerns remain around both the rising costs of claims and the ability of policyholders to afford the cover on offer.

Brokers are steeling themselves for tough conversations with clients as rising inflation creates a looming underinsurance crisis.

Policies will need to reflect new, and significantly higher, insured values at renewal, bringing a requirement for higher premiums to cover larger potential exposures.

As the industry looks to rebuild public trust following the Covid-19 business interruption coverage crisis, insurers are keen to ensure that the media is not filled with tales of businesses unable to operate because their insured sums are not sufficient to rebuild or restore their operations.

With the UK on the brink a recession, there is a recognition that the industry will need to undertake an urgent campaign to highlight the impact inflation is having - and will continue to have on market participants and their customers.

However, the market will also need to ensure that its message is pitched perfectly at a time when businesses are looking to reduce spending.