The Financial Conduct Authority’s ‘GI value measures’ for 2023 allow anyone with a spreadsheet to calculate two headline figures for household insurance. One is the total number of household claims repudiated in 2023, and the other is the estimated cost of those repudiated claims in the same period. And to be clear, by ‘household’, I mean claims repudiated on buildings only policies, contents only policies and buildings and contents policies.
So, in 2023, in UK insurance, a total of 252,233 household claims were repudiated. That’s a pretty startling number. It says that over a quarter of a million consumers had a claim turned down in 2023. That’s the sort of number that means an awful lot of people will know someone who had a household claim turned down, in 2023, or in 2022 (there were 239,819 repudiations), or in a recent year. It wouldn’t take too many years for it to add up to a million people.
So what does this mean in terms of the overall cost of un-indemnified losses? For this you need the average claims costs, and the FCA’s GI value measures supplies this for household insurance, albeit for settled claims. Can we use the same average claims cost for repudiated claims? I think it’s not an unreasonable thing to do, at least for indicative purposes.
£1.1 billion
Multiplying the number of repudiated claims by the average cost of settled claims comes to £1,097,163,832. So just under £1.1 billion. That represents a 28% increase over 2022, fuelled by both rising numbers of repudiated claims and the rising average cost of settled claims.
That’s a big number as well. Indeed, it’s as big as the total cost of fraudulent claims recently reported by the ABI for 2023 - £1.1. billion. And just to be clear about that comparison, the total cost of repudiated claims is for household only, while the total cost of fraudulent claims is for all lines of business.
So what do those two numbers for household insurance (253,223 and £1.1 billion) tell us? Well, let’s turn that question round. What did the numbers for your firm tell your senior management team? What were the top five patterns behind their firm’s numbers? What judgements did they reach, against the background of their regulatory accountability and legislative obligations? And of course, what answers have been prepared in response to someone doing the obvious thing and turning the overall situation into a media story?
I was doing this sort of thing back in the mid 1980s, when I did a lot of analysis for big commercial clients. This was about finding out why claims were happening, and equally, why they weren’t happening. Both would tell stories that influenced risk management practices at retail and industrial clients. And this was all using a Lotus 123 spreadsheet – do any of you remember that software? And yes, before any of you ask, I have used punch cards for analysis as well!
What’s Your Narrative?
Time may have moved on – outputs from the analysis have gone from overnight to the press of a button. What very much has not changed however is the importance of sitting back and thinking about what the numbers are telling you. The thing to bear in mind here though is that it won’t just be insurers doing that type of thinking. So what individual insurers need to have ready is their own narrative, about what their own numbers say in the context of an overall story about very large numbers of claims being repudiated at considerable loss to consumers.
No problem, some of you will say. The clear story here is about all consumers of household insurance not having to pay for claims that were not covered. This means a fairer price paid by all. And there is indeed a lot to that story, but it fails to address obvious questions about patterns.
Patterns and Clusters
Within that quarter of a million repudiated claims will be patterns that show where clusters of repudiations exist. To each of those clusters of repudiations must be applied some straightforward ethical tests. Out of such tests could emerge exposures, some to regulatory sanction, others to civil law. The big ones will undermine reputations.
The level of repudiated claims attracts questions. Insurers need to have their answers ready. And ready means by at least the summer of 2025, when the FCA publishes the same data for 2024.
Time for Targets
Claims are repudiated for a variety of reasons. Some of them will have to do with the way in which the policy is designed, marketed and sold. Those three reasons lie within the responsibilities of the manufacturing insurer. Improvements to the design, marketing and sales processes should therefore lead to a reduction in at least those associated parts of the repudiation total.
Targets for such improvements aren’t rocket science. The readability of the policy wording is an obvious one. Clarity of communication is another. Remember what ‘Which?’ found in July 2024, that 24% of people whose household claim was either partially accepted or rejected, said they were not given a reason why. That figure should be far lower. Those closer to this line of business should be able to come up with a few more like this.
The aim overall is to reduce repudiations, for if this doesn’t happen, there is a risk that the market for household insurance will be judged as failing consumers. And who wants that?
