How UK Insurers Can Manage Rising Claims Costs on Multiple Fronts

Our annual whitepaper, The Carrier Perspective: 2026 Claims Insights, made it clear that UK insurers are grappling with rising claims costs on multiple fronts with several forces influencing the claims environment, and intensifying cost pressures.

Among the core drivers of increasing claims costs were claims complexity, social inflation and litigation strains, rising medical costs, and technology enabled fraud.

The pressures of rising claim-related expenses are being felt across all core functions but are disproportionately affecting underwriting and claims handling according to our 2026 Claims Insights whitepaper, where both were ranked as the most impacted areas by 63% of UK insurers.

We explore why claims costs are compounding and what insurers can do to address their rising influence, and maintain financial resilience.

Tackling Social Inflation and Litigation Pressures

Social inflation and litigation pressures emerged as a considerable concern for nearly two-thirds of UK respondents (60%) in our 2026 Claims Insights survey, who cited them as major contributors to escalating claim severity.

Among the drivers are the upsurge in group litigation, particularly for data breaches and environmental claims, and an active litigation funding market, which has been emboldened by the expansion of third-party litigation funding (TPLF). The external capital being channelled into legal proceedings increases the scale, duration, and financial stakes of disputes, often resulting in higher settlements, and greater claims volatility.

However, there're strategies that insurers can deploy to counter these trends, including Alternative Dispute Resolution, which can be an effective cost containment tool for claims involving third parties, helping to reduce the legal expenses associated with defending claims in court.

More broadly, enhancing risk assessment and increasing premium rates were selected by 57% of UK insurers as the two most common strategies to counter social inflation in our 2026 Claims Insights whitepaper; a trend that was reflected globally with 58% of respondents opting for enhancing risk assessments, and 54% resorting to increased premium rates.

Revising pricing models (52%) and adjusting underwriting appetite (43%) were also popular choices for managing social inflation among UK insurers.

Combatting Increased Operational Complexity & Risk

In addition to increased claims-related expenses, 58% of respondents in our 2026 Claims Insights saw a rise in claim complexity over the past year and over two-thirds of respondents, both globally and in the UK, reported that claims aren't being settled faster than last year. Furthermore, of those that are, more than three-quarters say the faster settlements are coming at higher costs.

All of this makes for a challenging operational environment where compounding risk across lines is also forcing insurers to reassess how risks are managed, and ultimately resolved.

In response, insurers are refining their pricing and underwriting strategies to align more closely with evolving risk realities.
One such strategy being explored by many insurers is dynamic pricing models. A Gallagher Bassett (GB) analysis showed that these models, often powered by AI, are enabling insurers to align premiums more closely with risk exposure, thereby improving underwriting accuracy, and portfolio profitability.

Technology is also increasingly being deployed by insurers to mount a defence against technology-enabled fraud and AI manipulation, which are presenting another layer of operational, cost pressure, and creating a paradox whereby technology is responsible for deescalating the risk posed by the fraudulent claims it is enabling.

More than half of UK insurers (52%) who participated in our 2026 Claims Insights survey reported AI and digital tools being used to combat fraudulent activity. This underscores the dual nature of technological advancement: while innovation is strengthening insurers defence, it is also creating new vulnerabilities and requires ongoing investment to stay ahead of evolving threats.

Beyond technology, insurers are also enhancing scrutiny over claim assessments and focusing on efficient recoveries as central strategies to address escalating claims costs and maintain profitability.

Managing Medical Inflation and Claims Severity

More than one in three UK respondents (35%) in our 2026 Claims Insights survey identified medical inflation as the leading contributor to rising claims-related costs, with its impact being felt most acutely across general liability (45%), auto liability (40%), and professional liability (37%).

As treatment and rehabilitation expenses exceed actuarial expectations, the frequency and severity of medical claims are also on the rise, exacerbated by an ageing population with pre-existing medical conditions.

To address this, insurers are investing in prevention, prediction, and early-intervention tools that can detect and mitigate medical cost inflation earlier in the claim's lifecycle. AI is playing a key role through predictive analytics that streamline resource allocation, prioritise treatment plans earlier and control costs more effectively to prevent unnecessary escalation.

Insurers need to adjust to the reality that increases in claim-related costs driven by the combined forces of inflation, litigation frequency and evolving risks are no longer mere fluctuations, but part of a structural shift that will continue to challenge the industry.

With this realisation comes the need for insurers to embrace increasingly sophisticated cost-management tools, combining predictive analytics, pricing precision, and proactive claims handling into an integrated, data-driven framework.

When it comes to continued growth versus mitigation, insurers should consider embracing current conditions as an opportunity to differentiate themselves by streamlining claims processes, strengthening performance and placing increased emphasis on customer service excellence.

To learn more about how GB's combined strategic capabilities in claims handling, litigation and risk consulting can help you maintain profitability amidst rising claims costs reach out today.

The Carrier Perspective: 2026 Claims Insights is available for complimentary download now. Discover more indispensable insights and key takeaways to help your organisation thrive, and overcome the challenges facing the insurance industry.