Inflation, Supply Chain Disruption and Political Risk Impacting Personal Auto; Loss Pressures, Hard P&C Market Expected to Continue Due to Inflation, New Triple-I/Milliman Report Shows

For Immediate Release
Triple-I: Loretta Worters, lorettaw@iii.org
Milliman: Jeremy Engdahl-Johnson, jeremy.engdahl-johnson@milliman  

NEW YORK – Aug. 11, 2022 – The 2022 combined ratio for the property/casualty insurance industry is forecast to be 100.7, a worsening of 1.2 points relative to 2021, driven by significant deterioration in the personal auto line.

Loss pressures and a hard P&C market are expected to continue due to inflation, supply chain disruptions, and geopolitical risk, 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 Insurance Economics and Underwriting Projections: A Forward View, was presented on Aug. 11 at an exclusive members only webinar.

Michel Léonard, PhD, CBE, Chief Economist and Data Scientist at Triple-I, discussed key macroeconomic trends impacting the property/casualty industry results including underlying growth and replacement costs.

Léonard noted insurance growth continues to be constrained by economic fundamentals, with replacement cost increases at multiples of pre-COVID levels and subpar underlying growth.

“P&C underlying growth of 0.35%, while more resilient than the economy’s -0.93%, are both down year-over-year and year to date,” Léonard said, noting that it is too early to determine whether improvements in used auto and construction materials prices are sustainable. “We would like to see at least another quarter of improvements before fully factoring their impact into homeowners, commercial property, and auto insurance replacement costs.”

Dale Porfilio, FCAS, MAAA, Chief Insurance Officer at Triple-I, discussed the overall P&C industry underwriting projections.

“We forecast 2022 premium growth of 8.5%, lower than the 9.2% growth in 2021, but still strong due to the economic recovery and a hard market,” Porfolio said. He added that while 2022 catastrophe losses were lower in the first half than in 2020-2021, they were higher than 2018-2019.

On personal auto, Porfilio said that the 2022 net combined ratio is forecast to be 105.2, 3.8 points higher than 2021, driven primarily by significant deterioration in auto physical damage coverages.

“For personal auto in total, quarterly direct loss ratios deteriorated rapidly from the pandemic low of 47.5% for Q2 2020 to an average of 72.8% for the most recent three quarters of Q3 2021 to Q1 2022. Recent deterioration has been driven by physical damage coverages, with an average direct loss ratio of 78.6% in the most recent three quarters being the worst in two decades,” he said.

Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman – a premier global consulting and actuarial firm – said that another year of underwriting losses are likely for the commercial multi-peril line.

“Underwriting losses are expected to continue as more rate increases are needed to offset economic and social inflation loss pressures,” Kurtz said. For the commercial property line, he noted that the industry is seeing strong premium growth and rate increases should help to alleviate some of the pressure from catastrophe losses.  

Looking at the workers’ compensation line, Kurtz noted that the line’s multi-year run of underwriting profits is expected to continue, although margins are expected to shrink further through 2024.

“The U.S. economy has now recouped all private sector jobs lost as a result of the pandemic. While good news for the economy, this fact combined with the low level of unemployment, will likely constrain workers’ comp premium growth going forward,” Kurtz said.  

Dave Moore, FCAS, MAAA, President of Moore Actuarial Consulting, said the 2022 combined ratio for commercial auto is forecast to be 101.4.

“We are forecasting underwriting losses for 2022 through 2024 due to prior year development and the impact of inflation, both social inflation and economic inflation,” Moore said.

About Insurance Information Institute (Triple-I) Founded in 1960, the Triple-I provides objective, fact-based information about insurance while also being a trusted source of unique, data-driven insights which inform and empower consumers. We want people to have the information they need to make educated decisions, manage risk, and appreciate the essential value of insurance. We have more than 60 insurance company members, including nine of the 10 largest writers of property/casualty insurance in the United States. Our focus is to create and to disseminate information; we neither lobby on behalf of the insurance industry nor do we sell insurance.

About Milliman Milliman is among the world's largest providers of actuarial and related products and services. The firm has consulting practices in healthcare, property & casualty insurance, life insurance and financial services, and employee benefits. Founded in 1947, Milliman is an independent firm with offices in major cities around the globe.  For further information visit Milliman.