Crawford & Company has released its latest Claims Inflation Update, offering an analysis of the current claims environment in Australia.
Drawing on data from the company’s managed repair network, industry sources, and internal expertise, the report outlined the factors contributing to the rising costs and complexity of insurance claims, particularly in the construction sector.
The report found that construction expenses continue to rise at a rate faster than general consumer prices.
The Building Cost Index (BCI) is increasing at nearly 5% annually, a trend most evident in cities such as Brisbane and Perth.
These increases are attributed to a combination of strong demand, logistical challenges, and a persistent shortage of skilled labour.
The report noted that contractors are now including higher risk margins in their bids, reflecting concerns about productivity and market uncertainty.
Even as some regions see a slowing in escalation, the overall cost base remains elevated, affecting both project feasibility and the financial stability of contractors.
Material costs remain volatile, with some categories experiencing significant price shifts.
For the first time in over a decade, house construction material prices have shown a quarterly decrease, mainly due to lower timber and steel prices in New South Wales and Victoria.
Timber, previously the most unpredictable material, has stabilised since early 2023.
In contrast, concrete has seen the steepest increase, now costing 30% more than it did at the end of 2021.
Other materials, such as ceramics, finishes, and roofing, have also recorded cumulative increases of 20% to 30% over the past three years.
Labour shortages continue to be a major concern, with the construction sector reporting a national gap of 90,000 skilled tradespeople.
Wage growth is expected to reach 6% in 2025, and projections indicate that more than half a million new workers will be needed over the next five years to support national infrastructure and housing targets.
The combination of a shrinking workforce pipeline and slow policy changes on migration is leading to project delays, higher costs, and increased claims inflation.
The report noted a rise in contractor insolvencies, with over 3,200 construction firms entering administration in 2024.
This marks a significant increase from the previous year and is attributed to fixed-price contracts, cash flow challenges, and ongoing inflationary pressures.
These factors are contributing to project delays and incomplete work, which in turn drive up insurance claims and complicate the recovery process.
The report suggests that careful vetting of contractors and validation of project costs are becoming increasingly important to manage these risks.
Global supply chain disruptions are another key driver of claims inflation. The report pointed to rerouted shipping lanes, higher tariffs, and increased insurance premiums for maritime transport as factors pushing up the cost of repairs and rebuilding.
Some insurance policies are now excluding coverage for conflict-related incidents, increasing the exposure of businesses to supply chain risks.
Tariffs on raw materials and finished goods are also raising the cost of construction inputs, particularly for property insurance claims.
Business interruption (BI) claims are evolving, with losses increasingly triggered by events that do not involve direct physical damage.
Power outages, road closures, and other disruptions are leading to temporary business closures and financial losses.
The report highlighted that these non-damage events are becoming more common, and the assessment of BI claims now often requires forensic accounting to determine the cause and extent of losses.
Chris Ehlers, head of Crawford’s forensic accounting team, explained that the key challenge is to establish whether a business closure was due to an insured event or other circumstances, and whether it falls within the scope of the policy.
“One of the most challenging aspects of these events is determining when a business was truly prevented from operating due to an insured trigger and when closure was a precautionary or circumstantial decision,” he said. “In the case of Cyclone Alfred, many businesses shut their doors before the storm even made landfall. Prevention of access claims, in particular, require careful scrutiny of local authority directives, the timing of those directives, and whether access to the premises was genuinely restricted.”
To address these challenges, the report recommends the use of managed repair networks and building validation services.
Platforms such as Contractor Connection are cited as effective tools for ensuring quality and cost control in repairs.
The report also noted the growing importance of expert reports in the claims process, as they help clarify liability and support fair outcomes.
Recent data from the Australian Bureau of Statistics supports the report’s findings, showing a slight decline in overall business turnover in May 2025, with some sectors experiencing more volatility than others.
