The Insurance Information Institute Triple-I reports that the economic drivers for the U.S. property and casualty insurance industry are currently expanding more rapidly than the nation’s Gross Domestic Product (GDP), with expectations of increased momentum following potential Federal Reserve rate cuts.
Michel Léonard, Ph.D., CBE, chief economist and data scientist at Triple-I, notes that P&C underwriting growth has now surpassed GDP growth.
Triple-I projects a rise in P&C insurance growth to 3.4% in 2024, which is 1.2% higher than the Federal Reserve’s GDP growth forecast of 2.2%.
This growth trend is likely to continue enhancing the P&C insurance industry’s overall growth and performance over the next year.
Looking forward, Triple-I anticipates the P&C insurance sector will maintain its growth advantage over GDP through 2025 and 2026.
The expected average annual growth rate for the insurance sector will exceed U.S. GDP growth by about 2% over the next three years.
We’ve been forecasting that P&C underwriting growth would catch up on overall GDP and it has
Michel Léonard, Ph.D., CBE, chief economist and data scientist, Triple-I
However, various economic stress scenarios could alter this trend, either reducing the growth differential or reversing it.
The primary risks to sustained growth in the insurance sector and overall GDP include potential changes in the Federal Reserve’s monetary policy and emerging geopolitical risks that may affect global supply chains.
Despite these potential challenges, Triple-I remains more optimistic about economic growth than the Federal Reserve, attributing less impact to the negative effects of interest rate hikes on GDP and unemployment in its models.
For 2024, Triple-I forecasts a 2.6% GDP growth, slightly above the Federal Reserve’s prediction of 2.2%. Léonard suggests that a Federal Reserve decision to cut interest rates this year could further stimulate significant areas of insurance underwriting, such as housing and auto sales.
The U.S. property and casualty (P&C) insurance industry is influenced by several economic drivers that shape its growth and performance.
Here are some key aspects, according to Beinsure Media:
- GDP Growth: The P&C industry often correlates with the broader economy, as growth in GDP generally leads to increased business activities, property values, and asset acquisition, all of which expand the base for insurance underwriting.
- Interest Rates: Changes in interest rates, influenced by the Federal Reserve, can significantly affect the industry. Lower interest rates can reduce the income on insurers’ investment portfolios but may boost economic activity, leading to more insurance demand.
- Inflation: Inflation impacts the cost of claims and operational expenses for insurers. A rise in inflation can lead to higher premiums but also increases the costs that insurers face when paying out claims.
- Legislation and Regulation: New laws and regulations can open up opportunities or impose constraints on insurance products and pricing, impacting industry profitability.
- Technological Advancements: Innovation in technology affects the P&C insurance sector by improving risk assessment, enhancing customer interaction, and introducing new insurance models and products.
- Climate Change and Natural Disasters: Increased frequency and severity of natural disasters, influenced by climate change, can lead to higher claims and force insurers to adjust their risk models and pricing strategies.
In terms of a short forecast, the industry is expected to outpace GDP growth in the coming years, with projections indicating that P&C insurance growth will exceed overall U.S. economic growth by approximately 2% annually over the next few years.
This growth is underpinned by solid economic fundamentals and could be further influenced by Federal Reserve policies, particularly if there are cuts to interest rates.
However, it’s important to note that external risks such as geopolitical tensions and supply chain disruptions could pose challenges to this growth trajectory.
by Yana Keller
