Curbing inflation and claims costs offer glimmers of hope for property and casualty insurers, but underwriting profitability will remain a challenge for most industries for the foreseeable future, according to actuaries at Triple-I and Milliman, a risk management, benefits and technology firm. Their findings were presented at a Triple-I quarterly webinar for members.
Dr. Michel Léonard, Triple-I Chief Economist and Data Scientist, predicts that the cost of materials and labor involved in replacing or repairing insured property will decrease from 8.1
percent at the end of 2022 to 4.5-6.5 percent at the end of 2023 way to 0.9 percent in 2024. The supply chain since the start of the covid-19 pandemic and Russia’s invasion of Ukraine has kept replacement costs at historic highs.When the cost of repairing or replacing damaged cars or homes is high, the premium rates that determine how much policyholders pay for coverage should increase proportionately. As Triple-I has previously reported, however, this has not been the case for homeowners and auto insurance. Premium rates for both of these lines of insurance have not kept pace with rising costs. As a result of these and other factors, insurance companies have struggled to remain profitable.
The replacement costs of personal cars, calculated Dr. Léonard, will drop from nearly 10 percent to near 0 percent by 2024. Homeowner replacement costs are predicted to fall from 7.6 percent to below 2 percent by 2024.
Deteriorated profitability in general
The P&C industry’s 2022 total expense ratio – a measure of insurance profitability – is estimated at 105.8, a 6.3 percentage point decline from 2021. Combined ratio represents the difference between insurance claims and expenses and premiums collected by insurance companies. A combined ratio below 100 represents an insurance gain and one above 100 represents a loss.
For the overall P&C industry forecasts, Porfilio said, “We forecast premium growth of 8.4 percent in 2022 and 8.5 percent in 2023, primarily due to tough market conditions and exposure growth.”
Personal car insurance has been a primary driver of the industry’s weak insurance performance. Dale Porfilio, Triple-I’s chief insurance officer, said the 2022 total cost of personal auto insurance is forecast at 111.8, 10.4 points worse than 2021 and 19.3 points worse than 2020. He said supply chain disruptions, labor shortages and more expensive replacement all parts contribute to current and future loss pressure.
For the commercial multi-peril line, Jason B. Kurtz, a principal and consulting actuary at Milliman, said underwriting losses are expected to continue.
“Insurers will need to consider rate increases to offset the economic and social inflationary loss pressures,” Kurtz said.
Dave Moore, CEO of Moore Actuarial Consulting, said the 2022 total cost of commercial auto is expected to have deteriorated in 2022. Moore also stated that general liability is deteriorating.
“We forecast a small underwriting gain for 2023 and 2024, but inflation and geopolitical risk are putting pressure on these forecasts,” he said, adding, “Premium growth from the hard market is expected to slow in 2022 to 2024.”
For the commercial real estate line, Kurtz noted that the industry is seeing strong premium growth and rate hikes should help relieve some of the pressure from catastrophe losses. Despite Hurricane Ian, he said he expects an insurance gain in 2022, which will continue into 2023 and 2024.
Donna Glenn, chief actuary at the National Council on Compensation Insurance, noted that the workers’ compensation industry has seen declines in rates and loss costs for several years, driven in part by reductions in the frequency of on-the-job accidents. This line, Glenn added, is expected to continue its profitability.
Read more:
Drivers of Homeowner Rate Increases (Triple-I Issues Brief)
Personal Car Insurance Rates (Triple-I Issues Brief)
Risk-based pricing of insurance (Triple-I Issues Brief)
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