Uncertainty spawned by the debt ceiling debate will probably exacerbate the replacement value inflation that has been placing upward stress on property/casualty insurers’ loss ratios – and, in the end, customers’ premium charges, in line with Triple-I’s chief economist.
“Whether or not we go to five, 10, 20 days – or if we don’t have a shutdown at all – this signals to the market a dysfunction in terms of government operations,” mentioned Dr. Michel Léonard, Triple-I chief economist and information scientist in an interview with Triple-I CEO Sean Kevelighan. “That leads to higher interest rates…which fuels inflation and reduces growth.”
As materials and labor prices rise, dwelling and automobile repairs change into dearer, pushing up insurers’ losses and placing upward stress on premium charges. For a P/C business already fighting excessive substitute prices and attempting to develop with the remainder of the economic system, Léonard mentioned, “This [debt limit debate] adds to those challenges.”
Kevelighan – whose background contains having labored within the U.S. Treasury Department through the George W. Bush administration – known as excessive substitute prices a “new normal.”
“You have to look at year-over-three-years replacement costs, and they’re high,” Kevelighan mentioned. “Personal homeowners replacement costs are up 55 percent. We’ve got personal auto replacement costs up 45 percent. And if inflation goes to a negative, we’re in an even worse place.”
Léonard identified that the federal authorities has shut down 21 occasions since 1976, with the shutdowns lasting so long as 35 days or as little as a number of hours. In the interview above, he explains how these have usually performed out and what varieties of situations would possibly lie forward.
Learn More:
How Inflation Affects P/C Insurance Rates – and How it Doesn’t (Triple-I Issues Brief)
Commercial Lines Partly Offset Personal Lines Underwriting Losses in P/C 2022 Results (Triple-I Blog)