US insurers bearing brunt of inflation – report

They face higher costs compared to other insurers worldwide

US insurers bearing brunt of inflation – report

Insurance News

By Mika Pangilinan

US insurers have been hit harder by inflation compared to their counterparts abroad, paying higher costs for repairing and rebuilding damaged properties and vehicles since 2018.

This is according to a report from the Insurance Information Institute (Triple-I), which examined the relationship between overall inflation and insurance replacement costs for property and casualty (P&C) insurers in six major insurance markets worldwide.

The analysis covered the period from 2018 to 2022 and included Canada, the European Union, Japan, Korea, the UK, and the US.

Among these markets, the US was found to have the highest cumulative inflation rate of 20.7% over the course of the five-year timeframe. It was followed closely by the EU with 20.3%, the UK with 17.7%, and Canada with 17%. Korea and Japan saw the lowest rates, with 11.9% and 3.3% respectively.

Triple-I’s findings also revealed that the US experienced the highest cumulative inflation rate increase for insurance replacement costs during the same period, reaching 30.4%.

Furthermore, it was revealed that cumulative increases in property replacement costs outpaced overall inflation in the US, Canada, and Japan. Conversely, overall inflation surpassed the increases in property replacement costs in the UK, the EU, and Korea.

The US, Canada, the UK, and the EU showed different degrees of correlation with one another, the report added, while Japan and Korea showed no correlation with each other or with any of the other countries.

In terms of auto replacement costs, the report indicated that cumulative increases were higher than overall inflation in the US, UK, Canada, and Japan. On the other hand, the EU experienced higher overall inflation compared to increases in auto replacement costs, while Korea witnessed auto replacement costs rising less than overall inflation.

Other key insights

In the report, Triple-I chief economist and data scientist Michel Léonard highlighted the significance of quantifying the relationship between inflation and insurance replacement costs on a global scale.

Leonard said such analysis provides a framework for optimizing insurance capital allocation “by seeking uncorrelated underlying economic fundamentals and insurance performance metrics.”

He also noted the importance of distinguishing between correlated and uncorrelated drivers of insurance replacement costs, as it enhances the ability to forecast line-specific performance metrics and offers guidance to industry stakeholders during times of economic stress.

Triple-I’s Inflation and Insurance Replacement Costs report serves as an executive briefing conducted on behalf of the International Insurance Society (IIS). Both Triple-I and IIS are affiliated with The Institutes.

“This International Insurance Society executive briefing is one in a series from experts such as Dr. Léonard on issues that reflect the priorities across the global industry,” said IIS president Josh Landau. “These briefings provide valuable analyses that help inform decisions and shape solutions for insurers worldwide.”

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