N°25-14: Strategic Claim Payment Delays: Evidence from Property and Casualty Insurance

Following adverse events, insurers not only raise premiums but also delay claim payments, potentially imposing high state-contingent costs on clients who experience losses. These delays increase losses payable, one of the largest liability items on insurers’ balance sheets, augmenting insurer liquidity analogously to interest-free credit. Claim payment delays are larger and more prevalent for insurers that are less capitalized, less liquid, and those who serve clients who are less likely to complain to the regulator. In addition to losses in the same line of business, delays, unlike premiums, also increase in response to losses in unrelated lines of business.