The effects of the cost-of-living crisis on your insurance policy

No matter where you live in the UK, all individuals are feeling the pinch of the cost-of-living crisis, fueled by soaring inflation. With everything from energy to food to fuel more expensive than this time last year, the insurance industry is also feeling the effects.

Although it can feel necessary to cut costs, we wanted to highlight some of the risks this presents for you, and highlight some frequently asked questions as a result of the crisis.

What is claims inflation?

Claims inflation is the increase in the amount it would cost to settle an insurance claim. This is due to rising costs in labour, materials and energy - so a rebuilding project in 2023 will cost significantly more than it would have done a year ago.

Why are my insurance premiums increasing?

Simply, because the cost and demand of raw materials parts and labour has increased significantly, to address this claims inflation, your insurer may increase your insurance premiums to cover the rise. Insurers calculate the increase in your insurance premium by using an index that they apply to the declared value of items, energy and labour costs. The result reflects the current, true cost of reinstatement, rather than how much it cost back when you first took out your policy.

What are the risks of only purchasing basic cover?

There has been a trend in client’s prioritising keeping costs low as possible and opting for more basic levels of cover, that don’t necessarily adequately cover their classics, collections or businesses.

While this may feel like the best thing to do for now, you could be delaying a financial stress medium to long-term if something happens, specifically in the event of a loss.

We all buy insurance hoping that we won’t need to use it, which makes it a difficult cost to justify and one that people don’t enjoy prioritising. But purchasing insurance is the guarantee that if something was to go wrong, insurance will be there to put things right again.

When something does happen, there is nothing worse than realising that the basic cover you took out isn’t adequate. By then, it’s too late. You can’t go back in time and buy the cover you need, and you can’t purchase “after the event” cover to rectify the gap. The financial burden of putting things right sits with you, and the earlier decision to save costs by reducing cover is proved to have been the wrong one.

Not taking out the policies you need could lead to gaps in insurance protection

Much like the above, others may be tempted to opt out of additional products and services that further enhance their protection outside of the standard policy.

These short-term decisions to save money can prove to be a false economy in the long run if gaps in cover are exposed. A broker can complete a full review of your requirements and advise you on the protection you need to have a complete insurance portfolio to make sure you aren’t leaving yourself short.

What can you do if you need extra help with your insurance?

We appreciate that some clients may need extra help and support with their insurance needs. Whilst our staff are trained to support clients, it is not always possible to identify all those with needs, so please tell us if you need extra help and we will do our best to support you. You can fill out this form to let us know and a member of our team will be in touch: https://www.footmanjames.co.uk/additional-assistance