Inflation in insurance claims expected to be moderate, Willis Towers Watson

Uncertainty continues around the war in Ukraine and it has, and will continue to impact inflation and interest rates, which typically leads to moderate claims inflation, according to the WTW Insurance Marketplace Realities 2022 Spring Update. 

The report includes rate predictions and market insights on many lines of business including cyber, property and international casualty, amongst others.

Jon Drummond, senior editor of insurance marketplace realities and head of broking at WTW, writes in the report that the humanitarian crisis happening in Ukraine is the first thought.

“Our second thought is about how we help our clients manage their personnel, investments, operations and businesses in this region,” Drummond writes. “The global economic impact of the crisis and the sanctions against Russia is a big unknown. … Of course much could change in the next six to 12 months. Disruption and uncertainty are the watchwords of the day. But in our world there’s another word: resilience.”

The WTW Spring Update goes on to highlight that experts in 26 of the 33 lines of coverage predict increases for buyers. However, D&O is expected to see rate decreases; personal lines and life sciences will likely see increases. Cyber will continue to spike, last fall the prediction was an increase between 50 to 150% and now it’s 100 to 200%.

“In short, buyers will still be paying more for their insurance in most cases,” the report states. “But in most lines, with the notable exception of cyber, improvement is expected to continue through 2022–unless inflation and/or the crisis in Ukraine end up turning the direction of the marketplace.”

Three situations related to inflation are considered in the report. One includes a short spike in inflation before a bounce back, another is about two years of elevated inflation and the third includes a sustained period of higher inflation, which the authors deem unlikely.

“Premium pain will continue through 2022, but premium increases for most insured will likely be driven more by inflation raising insurable values than by increases in rate,” the report states.

The following are areas where inflation may impact insurance:

Specialty lines, including aerospace and commercial auto, see a short-to-medium-term increase in expected claims.
Increased interest rates and continued rate hikes by the Federal Reserve could lead to lower than expected equity returns.
Claims inflation and depressed investments may lead to higher renewal prices.