Strategic Claim Payment Delays: Evidence from Property and Casualty Insurance

Authors

Chotibhak Jotikasthira, Southern Methodist University (SMU) - Finance DepartmentFollow
Anastasia Kartasheva, University of St. Gallen - School of Finance; Swiss Finance Institute; Joshua J. Harris Alternative Investment ProgramFollow
Christian T. Lundblad, University of North Carolina Kenan-Flagler Business School; Frank Hawkins Kenan Institute of Private EnterpriseFollow
Tarun Ramadorai, Imperial College London; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)Follow

Publication Date

1-27-2025

Abstract

It is well-known that insurers raise premiums after adverse events. We show that they also slow the pace of claim payments, potentially imposing high state-contingent costs on loss-making clients. Unlike premium adjustments, payment adjustments also occur after adverse shocks in unrelated business lines. These shifts increase unpaid losses—a substantial liability on insurers’ balance sheets augmenting liquidity analogously to interest-free credit. Slowdowns are more prevalent among insurers with lower capital or liquidity who serve clients less likely to file regulatory complaints. This evidence aligns with insurers’ strategic financial considerations, though whether they constitute formal delays in the legal sense remains an open question.

Document Type

Article

Keywords

Claim payments, Delays, Financial constraints, Insurance

Disciplines

Finance

DOI

10.2139/ssrn.5115108

Source

SMU Cox: Finance (Topic)

Language

English