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Inflation puts pressure on policyholders, policyholders



The annual increase of 6.8% in the consumer price index reported last week provided more evidence of higher inflation trends in the US, but economists and managers in the insurance industry say that higher prices can only be an issue in the short or medium term for the sector.

The Covid-19 pandemic is the main driver of price increases, and supply-demand imbalances should be normalized over the next two or so years, they say.

valuations that surprise some. The uncertainty caused by the uneven emergence of companies from the pandemic has made the changes more difficult to deal with, and the emergence of the omicron coronavirus variant may further complicate recovery efforts.

After several months of above-average increases, inflation may begin to moderate. While the annual inflation rate is at its highest in decades, the US Bureau of Labor Statistics reported on Friday that the consumer price index rose by 0.8% in November, on a seasonally adjusted basis, after rising by 0.9% in October.

Economists says. the global disturbance linked to the pandemic has been the root cause of current economic inflation and uncertainty.

"There is no doubt without the pandemic that we would not have had this inflation," says Robert Hartwig, clinical associate professor and director of the Risk and Uncertainty Management Center at the University of South Carolina's Darla Moore School of Business, adding that "economists are the least surprised group" over inflation.

However, he added that many of the factors that drove the consumer price index so high in October are already declining, with lower energy prices and futures and disruptions in the supply chain easing.

"This is a pandemic story," said Thomas Holzheu, Armonk, New York -based chief economist Americas for Swiss Re Ltd. What began as a health crisis, with deadlocks and social distancing, turned into an unprecedented labor market and ultimately a global economic crisis, he said. working from home has helped to create mismatches in supply and demand, including home exchanges when people moved, which drives housing construction costs higher. "All this comes from covid," said Holzheu.

Both economists noted that the latest data and statistics are subject to a "base effect" as some economic indicators and measures were depressed last year due to the effects of the covid-1

9-related economic downturn.

Michel Leonard, Vice President, Senior Economist and computer scientist, and head of the economics and analysis department in New York for the Insurance Information Institute, said that this period of inflation is supply-driven and not demand-driven.

"Significant economic, pandemic and geopolitical threats to recovery remain," Leonard said in his presentation at the Joint Industry Forum in New York earlier this month. The emergence of the omicron variant is already leading to new restrictions and introducing increased uncertainty to the burgeoning recovery.

Although the reopening of economies is inconsistent and there is still a mismatch between supply and demand, these are "expected to resolve themselves but will take a little longer than expected and will definitely extend into 2022," Holzheu said.

" As manufacturing increases and supply chain problems ease, it should ease over time, but there is still a shortage that needs to be addressed, "said Karen Collins, vice president of Sacramento, California, for the American Property Casualty Insurance Association.

Materials needed for the construction and repair of real estate insurance began to be "limited" towards the end of 2020 and commercial auto suffered supply chain disruptions, extended repair times and were subject to labor shortages and further inflation, Collins said. of supply and labor shortages in the manufacture of new and extended vehicles

Inflation hits the insurance industry hard in some coverage areas, says Marcus Winter, President and CEO of Munich Re US

“Inflation for insurance companies is currently much higher than average CPI inflation… especially through the combination of increased costs for labor and materials. Timber costs have fallen slightly since the peak earlier this year but are still almost 40% higher than in 2019, and other construction materials such as steel, concrete and plaster also show above-average price increases, he said. [19659002] A tool to combat rising costs is risk reduction and control, said Collins.

Given the rise in prices and fluctuations in conversion and replacement costs, policyholders need to become increasingly confident and up to date with data on insurance values, said Tim Ramsayer, valuation manager for Marsh Advisory, a division of Marsh LLC, in New York.

Mr. Ramsayer said policyholders can conduct valuation studies on their asset schedule to ensure data is accurate and reflects inflation, fluctuations in pricing and increased uncertainty to emerge from the pandemic.

"There are some customers going through this exercise right now and is very surprised by the increase in value, "said Ramsayer.

The insurance companies also examine the insured values ​​of properties they cover, said Munich Res Mr. Winter.

"Insurance companies have seen the effect of inflation in their portfolios as early as the end of 2020 and the beginning of 2021 and have already responded to the current and future expected inflation environment by adjusting insured property values ​​and insured limits to maintain proper value insurance. , he said.


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