Why Property Insurance Costs Remain High in 2025
- Procurato Team
- Jun 23
- 3 min read
June 2025
The Market Context:
According to recent research on the UK home insurance market (Jan 2025), the UK home insurance market insurance payouts expected to hit highest level in almost two decades, driven by ongoing claims cost inflation.
In 2024, Procurato wrote an article on some of the reasons why combined operating rations (COR’s) were above 100% for property claims.
This article updates our market insight on household property claims and examines what has been happening with underlying inflation and where we expect it head.
We also explore the recent decline in claims volumes and examine potential causes, particularly changes in customer behaviour in response to rising premiums. These include policyholders increasing their excess, delaying or avoiding making claims, or opting out of cover altogether. However, this downward trend was disrupted in early 2025, when Storm Éowyn caused a regional spike in claims volumes.
Claims inflation continues to be an issue for property claims:
There are several reasons for this, including:
Elevated Material Costs
Construction material prices have stabilised in early 2025 but remain significantly higher than pre-2021 levels. Despite some easing since their peak in 2022, overall costs are still a major contributor to elevated repair expenses.
In 2024, we reported steady increases in the cost of key materials such as timber, steel, and concrete, driven by ongoing supply chain disruptions, tariffs, and other global pressures. These rising costs significantly impacted property repair and replacement expenses, contributing to higher insurance premiums.
As of 2025, prices for timber and steel have largely stabilised, and concrete prices have started to ease. However, continued demand for masonry products and residual supply issues are keeping overall material costs elevated, sustaining upward pressure on repair costs.
Reduced material cost pressures are expected to help ease underlying claims inflation in 2025 – BCIS forecasts UK materials costs to increase by approximately 3% in 2025. BCIS Source
Labour Shortages
We have highlighted in several papers including our 2024 article "Property insurance increase in repair costs and outlook" of the skills shortage in the construction industry, which remains consistent into 2025 (according to ONS and recent government reports). ONS Data
Demand for reinstatement work remains high, but access to qualified trades is still limited, partly due to an aging workforce and ongoing recruitment challenges. These pressures are pushing up contractor rates, leading to longer repair times and higher overall claims costs for insurers.
For the remainder of 2025, labour shortages are expected to persist, keeping property claims costs elevated. Government training schemes may help longer term, but near-term relief is unlikely. Government Training Announcement
Insurers should prepare for continued pricing pressure and repair delays, especially during surge periods.
Fall in frequency of claims
A question Procurato keeps getting asked is why claims volumes have been falling. This is due to changing customer behaviour, driven by increasing premiums; policyholders are increasingly shopping around for better deals, opting for higher excesses to keep costs down, and in some cases delaying or foregoing claims altogether to avoid premium hikes. However, the impact of Storm Éowyn in January 2025 caused a significant increase in claims volumes in the affected regions, temporarily reversing this trend.
The outlook for property inflation:
There are promising signs for insurers who take a proactive approach to controlling materials and labour costs, but staying alert to ongoing inflation drivers remains crucial throughout 2025.
Material costs have eased from their peak levels but continue to fluctuate. While many key materials have stabilised, certain items, such as masonry products, still experience upward pressure due to supply and demand imbalances. The BCIS projects a modest 3% rise in construction material costs this year, reflecting a more balanced but cautious market environment. Insights from Procurato’s research with leading construction firms and suppliers confirm a broadly positive outlook for raw material pricing, albeit with potential volatility that insurers need to watch closely.
Labour remains a significant challenge. The sector continues to face persistent skills gaps and an aging workforce, which keeps wage inflation and project delays a concern. While government training programs offer hope for future improvement, insurers should anticipate ongoing labour cost pressures and potential bottlenecks in claims repairs through the rest of 2025.
In short, while there is some easing in material costs and signs of gradual labour market adjustment, these factors continue to exert upward pressure on property claims inflation. Insurers that actively monitor these trends and adapt their claims strategies will be best placed to manage cost increases in the coming year.
References:
Comentários