American consumers are continuing to spend, and that's music to the ears of property/casualty producers.
According to a government report released late last week, personal spending climbed 0.4% in July, with core personal consumption expenditures gained 1.6% year-over-year. Capital Economics estimates that based on that trajectory, “annualized consumption growth will rise from the average of 2.3% of the past two years to close to 3%.”
In other words, Americans are shopping at higher rates than ever before and according to industry experts, that signals good times ahead for property/casualty insurance—and by extension, producers—particularly in the auto insurance sector.
Insurance Business America asked Insurance Information Institute President and economist Robert Hartwig what the P/C sector can expect from this news. Here’s what he had to say:
“The consistent increase in Personal Consumption Expenditures (PCE) is an important driver of P/C insurance industry exposure growth. Consumption accounts for 70% of GDP in the US (higher than in most other advanced economies) and drives personal lines and ultimately commercial lines exposures.
Increased consumer spending is fueling growth in the private passenger auto insurance line—the largest of all P/C lines—accounting for some 37 percent of all premium written. Growth in this key line stalled during the Great Recession as new car and light truck sales plunged by 35 percent from 2007 to 2009. Since then, sales have gradually recovered with the expectation that 16.2 million vehicles will be sold in 2014—fully restoring sales to their pre-recession level and leading to acceleration in premium written.
Growth in PCE also fuels commercial insurance exposures. Increased expenditures on everything from food to vacations stimulates growth, investment and hiring in a wide variety of industries (e.g., service, manufacturing, transportation, energy, etc.) This activity leads directly to the creation of new property, liability and workers compensation payroll exposures.”
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