Inflation and Insurance Replacement Costs was developed by the Insurance Information Institute (Triple-I) and analyzes the relationship between overall inflation and insurance replacement costs for property and casualty (P&C) insurers in six of the world’s largest insurance markets between 2018 and 2022: Canada, the European Union (E.U.), Japan, Korea, the United Kingdom (U.K.), and the United States (U.S.).
P&C insurers offer auto, home, and business coverage. Both the IIS and Triple-I are affiliates of The Institutes.
Within this five-year timeframe, the U.S. experienced the highest cumulative inflation rate (20.7%), followed by the E.U. (20.3%), the U.K. (17.7%), Canada (17%), Korea (11.9%), and Japan (3.3%), the analysis found.
The U.S. also saw the highest cumulative inflation rate increase for insurance replacement costs (30.4%) between 2018 and 2022, Triple-I determined.
U.S. insurers have paid more than their counterparts worldwide to repair and rebuild damaged properties and vehicles due to inflation since 2018, according to the International Insurance Society (IIS).
Quantifying the relationship between inflation and insurance replacement costs across national and regional P&C/Non-Life insurance markets can provide an additional framework to maximize insurance capital allocation, including reinsurance capacity, by seeking uncorrelated underlying economic fundamentals and insurance performance metrics
Michel Léonard, Ph.D., CBE, chief economist and data scientist, Triple-I.
Further, separating correlated and uncorrelated line-specific insurance replacement costs drivers can increase the ability to forecast line-specific performance metrics and provide added guidance to industry stakeholders, including regulators, seeking to maximize liquidity and solvency during times of economic stress such as the high inflation that characterized the COVID-19 pandemic and its aftermath.
The executive briefing on Inflation and Insurance Replacement Costs offers insights into residential and commercial property insurance trends as well as those being seen by personal and commercial auto insurers.
This International Insurance Society executive briefing is one in a series from experts such as Dr. Léonard on issues that reflect the priorities across the global industry
Josh Landau, president, IIS
Cumulative increases in property replacement costs were higher than overall inflation in the U.S., Canada and Japan.
Conversely, overall inflation was higher than increases in property replacement costs in the U.K., the E.U. and Korea.
The U.S., Canada, the U.K. and E.U. show different degrees of correlation with one another, the executive briefing states. Japan and Korea show no correlation with each other, or any of the other countries.
Larger property and casualty insurers in the Florida market are likely to benefit from recently enacted tort reforms, and it remains to be seen how those changes will affect other carriers in the Sunshine State, according to S&P Global.
The new law eliminates one-way attorneys fees and fee multipliers, changes standards regarding comparative negligence and modifies bad-faith rules when insurers are sued.
The changes bring Florida more in line with other states in dealing with claims, which Piper Sandler analyst Paul Newsome said is a pretty significant improvement. What is not clear is how to quantify that improvement, given that the changes focus on litigation issues, rather than how claims are handled.
Cumulative increases in auto replacement costs were higher than overall inflation in the U.S., the U.K., Canada, and Japan.
Conversely, overall inflation was higher in the E.U., while Korea saw auto replacement costs increase less than overall inflation
Riley Conlon, research analyst and data scientist, Triple-I.
Triple-I gathered economic data for each of the six insurance markets from national statistical reporting agencies to offer greater consistency across geographic boundaries.
by Yana Keller
