Claims inflation in Europe was a key feature of 2025 due to the rising costs of goods and services, construction, and repairs, and this is set to continue in 2026. These rises have been particularly prevalent within motor insurance, but there are a number of trends affecting claims inflation across the industry. Now more than ever, insurers are honing in on claims management, alongside pricing and rating upstream, to help understand and mitigate the effects of claims inflation.
Several Aspects Are Influencing Claims Inflation
According to Eurostat, the harmonised index of consumer prices is easing across the Euro area, with annual inflation for the area down 0.2 percentage points to 1.9%. However, this is being outpaced in some instances by the inflation of other elements, such as wages. The rising cost of skilled labour in sectors like motor and construction has had knock-on effects to repairs, and in the care sector, wage increases have affected casualty claims.
Both motor and construction are still facing supply chain challenges, which are not only adding delay to repairs, but also elevating costs. According to Marsh’s recent Global Construction Risk Review, construction supply chains are facing continued pressure globally from geopolitical tensions. This presents as tariffs, counter-tariffs, logistical bottlenecks, and ultimately leads to material shortages and price volatility.
Motor experiences similar supply chain challenges to construction. Adding to this, innovative shifts in motor and construction are also marked by more expensive parts and materials. The UK, for example, saw a surge in the number of electric vehicles on the road, with battery electric vehicles (BEV) accounting for nearly 24% of market share (up from nearly 20% in 2024). This is a meaningful shift from a claims perspective, as the Financial Conduct Authority outlined in its recent Motor Insurance Claims Analysis that BEV claims are 20-40% more expensive than equivalent internal combustion engine models, with repairs costing roughly 35% more.
These aspects, alongside many others, are taking place against a backdrop of geopolitical uncertainty, the growing frequency and severity of extreme weather, and an increasingly litigious society.
The Consequences of Claims Inflation
Claims inflation truly hits home when the increase in claims outstrips that of premiums. As such, it’s clear to see that the fallout of claims inflation has hit the motor sector hard. EY predicts a return to underwriting losses in 2026 for UK motor insurance. After achieving a net combined ratio (NCR) of 97% in 2024, EY forecasts a 2026 NCR of 111%.
The challenges within construction insurance are less severe, for now. Still, while other variables, like extreme weather, claims complexity, and modular construction, are factors in the eroding underwriting margins predicted for 2026, claims inflation continues to play a key role. Capacity remains tight for construction insurance within Europe, and more complex premiums are expected to rise by 8-15% across the region, between 2024 and 2026, according to Miller & Partner.
Finding a Way Through
As margins continue to tighten, the need for insurers to build resilience grows exponentially. For some, this may look like beefing up claims reserves; for many, it will be through leaning on operational efficiency across their businesses. The technological advancements ushering in a new era for pricing and rating will no doubt be needed to buttress against the effects of claims inflation.