Inflation continues to impact insurers and reinsurers

Despite recent falls in headline rates of inflation, the impact of previous rises in inflation will continue to be felt for a while, attendees heard at the Captive Insurance Companies Association’s annual conference in Scottsdale, Arizona. 

That was the key debate of a panel comprising Rob Anderson, chief risk officer & chief actuary, Palms Insurance Company; Derek Freihaut principal & consulting actuary, Pinnacle Actuarial Resources; and Matt Gravelin, senior vice president consulting, Brown & Brown. 

They pointed out that in recent years, high inflation and supply chain challenges have become impossible to escape and that while inflation is slowly returning to longer-term norms, insurers are still feeling the pinch. 

The panel start with a high-level briefing that made the case that inflation is a monetary phenomenon that many economists admit is imperfectly understood at times. 

Looking at the overall impact of inflation the panel said that if inflation goes up, so do premiums, with reinsurers also being affected. 

The panel also pointed out that inflation impacts different layers of loss differently. The impact is amplified on higher layers. Excess policies will also experience higher loss trends, which can be significant. 

Inflation can lead to upwards pressure on deductibles, limits, exposures based on values, reserves and rates. Everyone is impacted – policyholders are trying to get value as their dollars don’t go as far, whilst insurance companies are dealing with higher reserves, the need for more rate and increased reinsurance costs. 

Reinsurers face the same issues as primary carriers, but are dealing with even higher trends that they will pass on to primary carriers in future reinsurance premiums, the panel said. 

Finally the panel warned that additional costs due to the impact of inflation can lead to longer claim times and slower subrogation and salvage. It can also be very coverage specific – increased parts and labour costs impact on property coverage. The panel urged attendees to keep a close eye on costs. 

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