Modest inflation and replacement costs are giving P&C insurers glimmers of hope, but underwriting profitability will remain a challenge for most business tech companies for the foreseeable future, according to actuaries at Triple-I and Milliman. Their findings were presented during a quarterly webinar for Triple-I members only.
dr Michel Léonard, Triple-I’s chief economist and data scientist, predicts that the cost of materials and labor to replace or repair insured property will fall from 8.1 percent at the end of 2022 to 4.5 to 6.5 percent at the end of 2023 to 0, 9 percent in 2024. Supply chain issues since the start of the COVID-19 pandemic and Russia’s invasion of Ukraine have kept replacement costs at historic highs.
When the cost of repairing or replacing damaged cars or homes is high, the premium rates, which determine how much policyholders pay for coverage, should increase proportionately. However, as Triple-I has previously reported, this has not been the case for homeowners and auto insurance companies. The premium rates for these two classes of insurance have not kept pace with rising costs. As a result of these and other factors, insurers struggle to stay profitable.
According to Dr. Léonard will drop from almost 10 percent to almost 0 percent by 2024. The replacement costs for homeowners are expected to fall from 7.6 percent to under 2 percent by 2024.
deterioration in profitability in general
The P&C industry combined ratio for 2022 – a measure of underwriting profitability – is estimated at 105.8, down 6.3 points from 2021. The combined ratio represents the difference between the claims and expenses paid by insurers and the premiums collected. A combined ratio below 100 represents an underwriting profit, while above 100 represents a loss.
For P&C industry insurance forecasts as a whole, Porfilio said, “We forecast premium growth of 8.4 percent in 2022 and 8.5 percent in 2023, mainly due to tough market conditions and risk growth.”
Personal motor insurance was a key driver of the industry’s weak underwriting results. Dale Porfilio, Triple-I’s chief insurance officer, said the 2022 personal auto insurance combined ratio 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 expensive replacement parts are all contributing to current and future loss pressures.
Jason B. Kurtz, Milliman’s principal and consulting actuary, said underwriting losses in the commercial multi-peril line will continue.
“Insurers need to consider rate increases to offset economic and social inflationary pressures,” Kurtz said.
Dave Moore, president of Moore Actuarial Consulting, said the 2022 commercial motor vehicle combined ratio is expected to worsen in 2022. Moore also explained that general liability is deteriorating.
“We forecast a small underwriting profit for 2023 and 2024, but inflation and geopolitical risks are putting pressure on these forecasts,” he said, adding, “Premium growth from the hard market is expected to slow in 2022-2024.”
For commercial property insurance, Kurtz noted that the industry is seeing strong premium growth and that rate increases should help ease some of the pressure from catastrophe losses. Despite Hurricane Ian, he expects an underwriting profit in 2022, which will continue into 2023 and 2024.
Donna Glenn, chief actuary for the National Council on Compensation Insurance, noted that the workers’ compensation line of business has seen a number of years of declines in rates and loss costs, due in part to a reduction in the frequency of work-related injuries. That line, Glenn added, is expected to continue to be profitable.
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Risk-Based Insurance Pricing (Triple-I Issues Brief)