Moderating inflation and replacement costs provide glimmers of hope for property and casualty insurers, but technical profitability will remain a challenge for most lines of business for the foreseeable future, according to Triple-I actuaries. and milliman, a risk, profit and technology management company. His findings were presented at a quarterly meeting of Triple-I members only webinar
Dr. Michel Léonard, Triple-I’s chief economist and data scientist, forecast that the costs of materials and labor needed to replace or repair insured property will decline from 8.1 percent by the end of 2022 to 4 .5-6.5 percent by the end of 2023 on the way to 0.9 percent in 2024. Supply chain problems since the start of the COVID-19 pandemic and the Russian invasion of Ukraine have kept the replacement costs at all-time 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 must increase accordingly. However, as Triple-I previously reported, this has not been the case for auto and homeowners insurance. Premium rates for these two lines of insurance have not kept up with rising costs. As a result of these and other factors, insurers have struggled to remain profitable.
Personal car replacement costs, Dr. Léonard projected, will fall from nearly 10 percent to nearly 0 percent by 2024. Homeowners’ replacement costs are projected to fall from 7.6 percent to less than 2 percent by 2024.
Deterioration of profitability in general.
The 2022 combined ratio of the P&C industry, a measure of technical profitability, is estimated at 105.8, a 6.3 point worsening from 2021. The combined ratio represents the difference between claims and expenses paid and premiums charged by insurers. A combined ratio below 100 represents a technical gain and one above 100 represents a loss.
For general P&C industry underwriting projections, Porfilio said: “We forecast premium growth of 8.4% in 2022 and 8.5% in 2023, primarily due to tough market conditions and growth of the exhibition”.
The personal auto insurance line has been the main driver behind the industry’s weak technical results. Dale Porfilio, director of insurance for Triple-I, said the 2022 net combined ratio for personal auto insurance is forecast at 111.8, 10.4 points worse than 2021 and 19.3 points worse than 2020. He said the Supply chain disruption, labor shortages, and more expensive replacement parts all contribute to current and future loss pressures.
For the commercial multi-risk line, jason kurtza principal actuary and consultant to Milliman, said technical losses are expected to continue.
“Insurers will need to consider rate increases to offset loss pressures from economic and social inflation,” Kurtz said.
David Moore, President of Moore Actuarial ConsultingHe said the 2022 combined ratio for commercial autos is forecast to have worsened in 2022. Moore also said overall liability is deteriorating.
“We forecast a small technical gain for 2023 and 2024, but inflation and geopolitical risk put pressure on these forecasts,” he said, adding that “hard market premium growth is forecast to slow in 2022 to 2024.”
For the commercial property line, Kurtz noted that the industry is experiencing strong premium growth and rate increases should help alleviate some of the pressure from catastrophic losses. Despite Hurricane Ian, he said he expects a technical gain in 2022, continuing in 2023 and 2024.
Donna Glenn, Chief Actuary of the National Council of Compensation Insurance, He noted that the workers’ compensation line of business has seen declines in rates and loss costs for several years, in part due to reductions in the frequency of on-the-job accidents. This line, Glenn added, is expected to continue to be profitable.
Learn more:
Factors Driving Homeowner Rate Increases (Triple-I Issue Summary)
Personal Automobile Insurance Rates (Triple-I Issue Summary)
Risk-Based Insurance Pricing (Triple-I Problem Summary)
