A perfect storm of factors, including the war in Ukraine and the global energy crisis, have caused a major spike in inflation that looks set to last well beyond 2022.
In many countries, rising interest rates and volatile exchange rates are exacerbating the impacts.
Meanwhile costs that impact insurance claims have been increasing faster than headline inflation for over a decade influenced by factors such as supply chain issues, rising legal costs and shortages of materials and labour.
So what does this mean for insurance contracts?
What should businesses be doing to mitigate the impact and make sure they continue to get the cover they need?
The value of some goods and materials have increased by more than 50%, far above the headline rate of inflation, affecting the cost of reinstatement – something that is easy to underestimate in a rapidly moving situation.
Schedules of values for property and equipment from earlier years suddenly look a long way from reality.
Likewise, calculations of gross profit for business interruption cover based on pre-2022 sales and commodity prices may now be out of date.
Limit sizes that might have been adequate in 2021 may fall short and leave businesses with significant exposures.
Rebuilding delays caused by supply chain disruption and shortages could also make business interruption limits and indemnity periods inadequate.
On the casualty side, claims settlements and awards made by courts, will be adjusted by inflation, pushing up the cost of third-party liability claims.
It’s no surprise that insurers are taking action to protect themselves.
Many are putting restrictions into terms and conditions to limit cover and reduce their exposures – for example, setting stricter caps on any inflationary increases in payments over the scheduled values.
Likewise, more insurers are imposing averaging clauses, which allow them to pay only a proportion of a claim if they find that the client is underinsured on their policy.
Whereas insurers may have previously let simple property claims go through based on average reinstatement values, now they’re questioning claims of a higher value and referring back to the schedule of values.
This can result in a protracted loss adjustment process.
If they find the values were too low, they may not pay the full value of the claim.
Taken together, all of these measures can increase an organization’s uncertainty about what’s covered and whether payouts will match the full extent of actual losses.
We can help you make sure you’re fully prepared so you get the best deal in the market.
Our global scale means we understand how trends, such as inflation, are affecting whole industries and geographies.
This enables us to help our clients better understand and manage their exposures.
If you have concerns about your valuations or renewal submissions, talk to us and we’ll help you work them through and present the best case to insurers.
We can help you review your valuations, adjust your business interruption loss estimates, or find a reputable valuation company if needed.
Iris has over 20 years of construction related insurance industry experience and has held various senior positions with major insurance brokers, focused on construction projects in Hong Kong, Macau, China, Singapore, Malaysia, Vietnam, Indonesia and North Mariana Islands. Iris is always seeking innovative risk transfer solutions for infrastructure, superstructure, hospitality, power and petrochemical projects in the region. Her core expertise includes contentious claims handling, lender advisory, risk analysis, insurance broking, and managing self-retention insurance programs and captives. Iris specializes in driving new business, designing project-specific and annual renewable insurance programs for mega-sized infrastructure and building projects from the construction phase to interfacing with the operation phase.
