Reserve Risk9 min read

Claims Inflation and Reserving: What Has Changed Going Into 2026

By Jonas Mohamed Osman Abdelghafour

Published 16 September 2026

How persistent claims inflation, social inflation and repair-cost dynamics should be reflected in general insurance reserves and reserve risk.

Executive answer

Claims inflation has behaved differently from headline economic inflation across most general insurance classes, and the gap has persisted. Reserving approaches that implicitly assume historical inflation will continue at historical rates have under-reserved motor damage, property and bodily injury classes in several markets.

Distinguishing the components

It helps to separate economic inflation in inputs such as labour, parts and building materials; superimposed inflation from legal, medical and settlement behaviour; and mix-driven apparent inflation from changes in what is being insured. The three respond to different leading indicators and should not be projected with a single index.

Modelling responses

Calendar-period inflation models, separation methods and explicit inflation-adjusted triangles all allow the inflation assumption to become a visible parameter rather than an artefact of the development factors. Making it visible is the main gain: it can then be discussed, challenged and sensitivity-tested with the business.

Governance considerations

Boards should see the inflation assumption as a named number with a range, alongside the reserve impact of a plausible deviation. Where pricing and reserving use different inflation views, the difference should be reconciled and explained rather than left to emerge later.

Conclusion

Inflation is currently the single largest judgemental assumption in many general insurance reserves. Treating it explicitly is the difference between a reserve estimate that can be defended and one that can only be revised.

Primary sources

claims inflationsocial inflationreserving