Inflation, Supply Chain and Riskier Insured Behavior Putting Pressure on Rates, Profitability, New Insurance Information Institute/Milliman Report Shows

NEW YORK, Feb. 16 (TNSRes) -- The Insurance Information Institute issued the following news release:

The property/casualty insurance industry is expected to run at an estimated 101.3 combined ratio for 2021, due to continued deterioration in personal lines, according to the latest underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman.

The quarterly report, Insurance Information Institute (Triple-I) / Milliman P/C Underwriting Projections: 2021-2023, was presented on February 15 at an exclusive members only (https://iiimembership.org/) virtual webinar.

Michel Leonard, PhD, CBE, vice president, senior economist, and head of Triple-I's Economics and Analytics Department, discussed key macroeconomic trends impacting the property/casualty industry results.

Leonard noted that the U.S. insurance industry performance continues to be constrained by higher than average inflation and lower underlying growth. "The insurance industry's performance continues to be significantly constrained by macroeconomic fundamentals," he said. "Insurance replacement costs are increasing faster than the national inflation rate while economic activity relating to housing and auto is recovering slower than the rest of the economy.

"Short of new COVID-19 variants and macro political risks such as Ukraine and trade wars, we expect economic fundamentals to align for stronger economic growth through Q4 2022 and to peak in 2023."

Dale Porfilio, FCAS, MAAA, Chief Insurance Officer, Triple-I noted that the insurance industry had the worst full-year CAT losses since 2017 with the Texas freeze, Hurricane Ida, wildfires and tornadoes. "Healthy premium growth in 2022 and 2023 is possible from an economic recovery and a hard market," he said, noting however, that uncertainty from COVID continues to put pressure on rates and profitability. "Inflation, supply chain, and riskier insured behavior are also contributing to loss pressures."

On the personal auto side, Porfilio said that the 2021 estimated combined ratio has increased to 99.9 due to deteriorating non-CAT loss trends combined with excess CAT losses. "Loss pressures forecast for 2022 and 2023 will likely result in profitability similar to pre-pandemic levels," he said. "Miles driven are back to 2019 levels, but with riskier driving behaviors such as speeding and impaired driving." The Triple-I recently published an auto insurance rates piece that outlines the issues more in depth.

On the commercial auto side, underwriting losses are forecasted to continue through 2023, but improve year-over-year said Dave Moore, FCAS, MAAA of Moore Actuarial Consulting. "We continue to observe a significant rebound in premium growth due to the economic recovery and the hard market."

Moore added that the Triple-I recently published a brief Social Inflation and Loss Development, funded by a Research Grant from the Casualty Actuarial Society (CAS). "Based on this research, we estimate that social inflation increased commercial auto liability claims by more than $20 billion between 2010 and 2019. This can be influenced by a variety of factors including negative public sentiment about larger corporations, litigation funding, and tort reform rollbacks. So, watch out for social inflation and prior year adverse development in this line."

Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman - an independent risk-management, benefits, and technology firm - said general liability underwriting losses are expected to continue but profitability should improve due to rate increases.

Looking at the workers compensation line, Kurtz noted that underwriting profits continue, although margins continue to shrink. "The pandemic recession, remote work and economic recovery are still impacting volume and location of workers comp risk. Claim frequency remains below pre-pandemic levels and if the trend of large reserve releases on prior accident years continues, 2021 is likely to be another profitable year."