Strategic Claim Payment Delays? Evidence from Property and Casualty Insurance

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. In addition, 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