The challenge
The cost of living crisis, a prevalent issue for many, has significantly impacted the ability of insurers to manage property claim settlements efficiently. This claims inflation appears to be due to a combination of factors, namely Brexit, the COVID-19 pandemic and increased energy prices due to the war in Ukraine and more recently, the conflict with Iran. These factors have resulted in supply chain shortages, increased material costs and fewer workers, collectively resulting in longer lifecycles for property insurers and increased claims spend. The ABI reported that UK insurers paid out £6.1 billion in property claims in 2025, the highest annual total on record.
Weather events have also increased the pressure on property insurers, with claims for damage following storms totalling £244 million in 2025, a 32% increase from 2024. Between April and June 2025, insurers paid out £322 million for damage caused by storms, heavy rainfall and frozen pipes. Of this, £198 million covered damage to homes and possessions, while weather-related business claims totalled £124 million. Summer 2025 was also reported to be the UK's hottest on record, resulting in a 10% increase in domestic subsidence payouts to £307 million.
Although adverse weather events, including named storms, are becoming more common as a result of climate change (it has been six years since the insurance industry last experienced a year with low losses from natural catastrophes), the resulting higher cost of claims will continue to put inevitable pressure on insurance premiums, albeit to a lesser degree than the peak in 2023.
The figures
The effect of claims inflation on home insurers' bottom line is stark. According to Ernst & Young, home insurers registered a net combined ratio (NCR) of 118% in 2023, which means that for every £1 made by insurers, they spent £1.18 on claims and expenses. Whilst Ernst & Young has not released any further figures, Deloitte reports that UK home insurers were set to finish 2025 with a slight profit, delivering a NCR of 98%. However, the expectation is a swing to a loss in 2026, with an NCR forecast of 102.1% by the end of the year. So, it seems that home insurers will continue to remain under pressure in the immediate future.
At the 'front end' of the process, the ABI's Property Insurance Premium Tracker Data shows that although consumers are still feeling the pinch with an average premium for combined buildings & contents policies in Q4 2025 of £379, this is an improving picture and the rise in home insurance premiums is acknowledged to have slowed from the 2023 peak.
What can insurers do?
With inflation of 3.2% in January 2026 and the price of some materials (notably steel) falling, there are some positive signs for property insurers. However, it is widely acknowledged that claims inflation for insurers (either as a result of material cost volatility due to global events or increased claims frequency) and higher insurance premiums for consumers are likely to continue for the foreseeable future and costs are highly unlikely to return to their pre-Brexit level.
The squeeze on the bottom line means that general insurers will need to streamline their claims processes in order to remain profitable and ensure they meet their solvency requirements. Some insurers have already adapted to these pressures, such as adopting a single price on claims under £100,000 to avoid delays from the tender process, encouraging early notification from brokers and customers and the increased use of cash settlements to conclude claims. Others are exploring increased automation technologies to enhance the customer journey, improve efficiency and promote better claims outcomes, including identifying and preventing fraud.
Transparent and proactive communication with policyholders is also perceived as crucial for swift claim resolution and to minimise costly complaints. Educating policyholders on risk management, the importance of early notification and the intrinsic value of insurance is also vital. For example, deploying representatives to flood-affected areas to assist with their policies enhances customer perception.
The adequacy of sums insured is particularly critical during periods of high inflation, as these can be quickly eroded, resulting in issues of under-insurance. One way to address this issue is via professional valuations for large and commercial risks.
Although the current inflationary pressures present considerable challenges for insurers and consumers alike, they are also driving innovation and creative problem-solving within the industry. These adaptive strategies and technological advancements are likely to strengthen property insurers, positioning them more robustly for when market conditions improve.
How DACB can help
In many cases, insurers are already taking proactive steps to deal with claims inflation. DACB can help at the outset by providing advice on coverage and policy response, so that early decisions can be made to decline cover where justified and reduce further costs where a claim is not covered. DACB is also well placed to advise on whether there are realistic prospects of making a recovery of insurers' outlay, as well as highlighting whether there is any evidence of fraud/deliberately exaggerated claims in a further effort to minimise any unnecessary claims spend. In all, by working together with their legal and strategic partners, insurers can be assured that their indemnity spend is optimised and is being spent where it should be; on fairly presented claims.
