Upward shift in incurred claims versus continued reduction in premiums

Net incurred claims increased materially (by 8.1%) across the P&I market between 20 February 2017 and 20 February 2018. This relatively abrupt increase in incurred claims may simply be another indication of the volatility in P&I claims over the last 20 years (the alternative of it being the start of a progressive upward trend in total claims is naturally more concerning).

While incurred claims demonstrated a sharp increase, the average level of claims actually paid in 2017/18 reduced by 4.8% (gross paid claims) and 4.5% (net paid claims). This difference is not unusual, due to the time lag between long tail liability claims being incurred and the cases actually settled and paid. The graph below displays the progression of gross paid claims, net paid and net incurred claims compared to total premium paid into the market, over the last 19 years.

Directly contrasting with the incurred claims increases however, premium charged by the combined market reduced by 4.5% (the second year of similar levels of reduction across the market).

Claims volatility has been discussed in previous reviews over the last decade. The graph demonstrates this pattern. Since the late 1980’s claims inflation was relatively predictable and progressive. There has however been a marked increase in claims volatility since 2006/07. This trend is shown most starkly in the gross paid claims results but the fluctuation in net paid and net incurred claims is similarly less predictable over the most recent 11 years.