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Claims Inflation

Discussion document to define and monitor claims inflation

Claims inflation is a vital input to planning, pricing, capital setting and reserving [1]. However, one of the biggest challenges is to establish a consistent definition across different business functions [2].

In 2009 Lloyd’s established the performance management data return (PMDR) setting out a consistent framework to monitor risk adjusted price movements from one year to the next [3].

The success of PMDR is largely due to the fact that Lloyd’s established an agreed definition and language for price monitoring across different entities, such as syndicates or classes of business.

Claims inflation is part of the PMDR framework, but only implicitly as part of the "other" category. This paper looks at how this can be broken down. It is hoped that a consistent understanding of this will support improved assessment and monitoring of claims inflation.