While rising interest rates may be bad for Wall Street, insurance companies are likely to take advantage of current market conditions, according to an economics expert.
“When interest rates fall, it’s not good for us,” said Robert Hartwig, associate professor and director of the Risk and Uncertainty Management Center at the University of South Carolina’s Darla Moore School of Business, in a presentation on the economics of work injury compensation and the impact of covid- pandemic at the National Council on Compensation Insurance’s annual insight symposium on Wednesday. “The best investment opportunities for carriers are coming up right now.”
At the same time, the pandemic “financial roller coaster”; is likely to continue, but factors affecting compensation – rising wages, sluggish workforce and medical inflation – are not doomed, he said, comparing recent figures with 1970s and 1980s figures. figures, when inflation and interest rates were at record highs and in some cases double-digit.
And long-tail lines such as Comp, which relies in part on investment income for financial strength, are among the companies that could see an increase in financial strength – which could help offset the difficulty, he said.
And while inflation – reported as 7.3% for April – may affect the corporate industry in terms of labor market conditions, medical inflation is unlikely to, he said, adding that medical inflation tended to surpass economic inflation in the years before covid, but that the ratio has turned after the pandemic, with medical inflation at 2.9%.
NCCI experts took a deeper dive into medical inflation at a later session, where they said there are “concerns” but no alarms. NCCI’s latest data show that drug costs are declining, but medical costs have increased slightly and the costs for facilities are increasing.
“While general inflation is up, the trends in medical compensation for workers have been moderate and the forecast is still relatively moderate in the near future,” said Sean Cooper, trainee leader and senior actuary at NCCI.