Analysts at Swiss Re have predicted that although inflation is easing in 2023, many cost pressures will still underpin elevated claims.
The high-inflation environment has been expensive for P&C insurers, Swiss Re said. The losses from Hurricane Ian at the end of 2022 contributed to a worsening of the P&C loss ratio, but the main driver was the sharp increases in economic inflation.
The company estimates that inflation alone increased, or will increase, P&C claims costs by 5-7.5% across main five markets in 2022 and 2023.
For property, a short-tail business immediately sensitive to inflation impacts and rising construction costs, Swiss Re estimates a 6-13% increase over the two years, higher than the 5-8% range of registered price increases.
A moderation in inflation, however, will ease P&C claims growth. Swiss Re said it believes inflation has peaked. Coupled with a repricing in loss-making areas during recent primary market renewals, this may alleviate some of last year’s underwriting pressure.
Still, Swiss Re stressed that insurers will need to maintain discipline in pricing, and terms and conditions, as it forecasts inflation to continue to impact many claims-relevant price categories, such as labour and medical costs. Prices in these areas typically grow more slowly than in other segments, and they remain elevated.
“Signals for a market correction had been mounting long before the inflation-driven rise in claims 2022. The underlying claims drivers indicate that higher primary insurance rates are likely. Sustained insurance underwriting discipline will be needed in 2023 to help improve underwriting results,” the company concluded.
Last year, Swiss Re partnered with Indonesia Re, to provide members with access to its analytics and risk consulting services.
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