Despite the fact that there has been solid progress on economic disinflation, claims development dynamics are still said to be a “major concern” for the property & casualty (P&C) insurance sector.
In a recent Swiss Re sigma report, analysts highlight how claims have risen significantly across lines of business in virtually all major non-life insurance markets over the past five years.
According to the report, the impact of economic inflation on claims growth is easing in 2023 from the highs of 2022, however, it still remains elevated.
The movement of inflation into wages and healthcare costs this year is seen in increasing claims costs across casualty lines.
In the 2023 Allianz risk barometer, macroeconomic risks “such as inflation, financial market volatility and a looming recession” moved up to #3 from #10 year-on-year, behind only cyber risks and business interruption.
In the report, Swiss Re stated they expect the impact of economic inflation on claims to ease further over the course of 2024 and 2025.
As this happens, more structural trends such as social inflation and increasing natural catastrophe exposure are more likely to return to the heart of claims dynamics.
Moving forward, claims in motor insurance – the second-largest non-life line of business – have shifted swiftly in major markets across 2023. As a result, there is now both higher claims frequency and severity in motor liability insurance.
At the same time, property insurance is still experiencing a solid upward trend in claims, fueled by much higher replacement costs today than two years ago.
Cost pressures from construction materials has generally eased off but higher wages and higher financing costs as a result of tighter monetary policy are said to be keeping construction costs elevated.
The global loss burden from natural catastrophes is also continuing to grow, as Swiss Re estimates the long- term growth rate at 5%‒7% in inflation-adjusted terms since 1992.
Lastly, liability lines, which comprise the majority of P&C industry reserves, and the adequacy of reserves after the inflation surge, is emerging as a key risk.
Across the US, reserves for lines such as commercial motor and certain general liability categories are already viewed as deficient.
The report notes that this challenging post-pandemic claims backdrop for non-life insurance is likely to continue in 2024 and 2025.
The firm anticipates that the industry may need to “consider strategies” to restore profitability and commercial sustainability, which includes setting appropriate and commensurate rates and being disciplined in underwriting policies.
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