Index linking and Inflation updates

Inflation has been a key theme in the UK in 2023 and now PM Rishi Sunak has announced UK inflation has dropped to it’s lowest level in two years.

Inflation is a key theme for the UK insurance market in 2023, as it is across the wider economy. Ignoring the fluctuations in the housing market, the construction sector has maintained a rapid and continued rise in the cost of labour and materials due to Brexit and the emergence from the Covid pandemic, with prolonged periods of Business Interruption and reduced business resilience, both financially and operationally.

The motor market also continues to be impacted by double digit increases due to rising costs of repair, a shortage of parts worldwide, the additional costs associated with electrical vehicles and the number of vehicles on the road now returning to their pre-covid levels.

With inflation halved, insurers have been recently relaxing index linking from its market peaks of 15% – 20% to somewhere nearer 5% which in turn should help reduce premium increases at renewal.

Historically index linking has been between 2% and 4% so with inflation halved there are glimmers of hope that we are getting back on track to previous levels.

What is index linking?

The rebuild value: This is the amount it would take to rebuild your property again.

The sum insured: This covers inflation during the insurance year, on top of the rebuild value.

Index linking:  Automatically adjusts the rebuild value when costs rise due to inflation. But it’s not just tied to inflation rates—it’s linked to how inflation affects different things needed to rebuild a home. So, there is no need for you to constantly revalue your like a magic formula used by the insurance market to make sure your property doesn’t become underinsured.  It applies for both buildings and contents insurance.

How to Find Your Property’s Rebuild Cost? To make sure index linking works its magic correctly, you need to start with the right rebuild value. We recommend Rebuildcost Assessment who will professionally ensure your buildings are insured for the right amount.

Whilst insurance premiums have continued to increase, we are always consistently checking the whole market for each client to ensure we are sourcing the most competitive prices. As such we are retaining 97.3% of our clients business through these challenging times and are hopeful that the above announcement from the government will start to slowly have a positive impact on the insurance market.