Aviva works UK price rules & claims process to tone inflation response

Insurer  Aviva has only needed to add some 2 to 2.5% to rates thus far in 2022 to accommodate the rising inflation outlook, while mitigating the impact both by leaning into the UK’s pricing regulations and by managing claims internally.

Aviva is “experiencing rising claims inflation dynamics” and has had to up its claims inflation forecasts as the year has progressed, CEO Amanda Blanc (pictured) told her company’s Q1 investor call. Forecasts went from an initial range of 4 to 6% claims inflation to an updated range of 6 to 8%.

“So, in Q1 we added between 2 and 2.5 percent of rate across the motor and the home portfolio to price for this increase in inflation,” Blanc said.  Trends look “similar” in Canada but, given regulatory requirements to file rate changes with local authorities,  Aviva is managing the volumes side instead.

Blanc defended the scale of increase from suggestion that the change in price outlook merited more. She likes  Aviva’s positioning vis-à-vis claims inflation given the roughly 50-50 mix in P&C between personal and commercial.  Aviva’s commercial lines have asset value indexing on “the vast majority of policies” and rate increases are above and beyond inflation concerns, Blanc said.

That leaves only personal lines plus commercial auto where inflation threats need more active mitigation.

“Pricing is not the only thing we have in our armoury,” Blanc said. The group is shifting its auto repair network into 24/7 mode to hold or increase the share of repairs handled on its own from the current 35%. As  Aviva currently plays it, the focus from supply chain management is turn-around time as much or more than claims inflation rates.

“A brand the size of  Aviva can do that perhaps more than the MGAs or the new entrants to the market,” Blanc said of claims cost control.

But inflation is just one wrench in the pricing works. Claims inflation shot up just as the industry was adjusting to new pricing rules in the UK. Regulators have banned steep discounts for new policies and price-walking for renewals, a long-standing practice that had severely penalised customer loyalty. Those rules came into effect January 1.

Motor started the year with a 5% increase in rate at  Aviva for new business and a zero to 5% rate cut for renewals. Retail residential saw 10-15% rate increases on new business and 5 to 13% reductions on renewals, Blanc said.

The upshot for business trends:  retention has gone up in both motor and home: by about 7 percentage points in retail motor and “about 5 points” in home.

“So, what we’ve actually done is written less new business, we’ve kept our existing customers,” Blanc said of the bottom line through FCA reforms.

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